3 Red Flags When Purchasing a Business

business purchase

Owning a business is always the desire of many people. A business makes you your own boss and can easily help you achieve financial freedom. There are people who prefer starting businesses from scratch while others opt to buy already established ones.

If you decide to buy an already established business, it is important to exercise extreme caution. There are many cases of people who get shortchanged simply because they don’t know what they are getting into.

As a buyer, you need to carry out thorough due diligence to understand everything about the business. This is particularly if you are getting into an area that you don’t have much information about. You can even seek the counsel of a business attorney in Bucks County.

Due diligence is not just about asking a few questions and closing the matter. It is the process of conducting in-depth research by yourself or with the help of a lawyer from Olen law office to pick out any issues that might appear unusual with regards to the business.

How do you conduct due diligence? This involves reviewing public records or lien judgments, online research, analyzing the track record of the seller among others.

Below are three red flags to watch out for when purchasing a business:

1. The seller gets agitated when asked for more information

As a buyer, the first step is to come up with a long list of questions. The aim of the question is to find out all the details about the business and clarify any doubts that you may have. This should include legal, financial, and operational elements of the business.

It can also include things such as contracts, operating agreements, supplier relations, financial statements, tax returns, employee contracts among others. It is important to involve a business lawyer in Fairless Hills PA at this stage. How do you detect a red flag?

When the seller:

  • Refuses to respond to the due diligence questions
  • Refuses to cooperate
  • Gives unclear information or responses

2. If the information given by the seller contradicts with the reality on the ground

Sometimes you may not know why someone has decided to sell their business. But because they want to do away with it and avoid loss, they will only tell you the good side of the business. They will lie to you about certain things just to convince you to purchase the business.

If that’s the case, then you will likely unearth such misinformation during the due diligence process. There are many instances where sellers describe how their business is doing well and making huge profits. But a quick search on the internet reveals a totally different story.

It is important to ensure that the information being given by the seller is consistent. The moment you start seeing contradictions, that should be a big red flag.

3. The business is not up to date as far as tax is concerned

Part of the due diligence process should involve looking at the tax returns of a business. This is not just about checks and balances. You need to find out if the business is tax compliant or not. You might not be able to verify everything about the tax returns of a business without the help of business attorneys Bucks county.

Special attention should be given to sales tax. This is because some businesses such as eateries have the habit of underreporting. But with an experienced business attorney in Fairless Hills PA, you can easily know if the business has been paying the required amount of tax returns or not.

In a nutshell, buying a business is not a bad idea. But it is important to ensure that you are getting into what you properly understand. One of the ways to ensure this is by working with experienced business attorneys Bucks county PA.

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