Are you looking to change career paths and go into business? Congratulations! Becoming an entrepreneur can be very rewarding, as long as you know how to go about it. There are a few common mistakes you might make, especially if this is your first time buying a business.
Keep reading to learn the top 5 mistakes to avoid when buying an existing company.
1. Not Conducting Your Due Diligence
You may come across a business opportunity that, at first glance, seems perfect. But don’t get too excited, too quickly. You should not commit to the deal before you do your due diligence.
Due diligence is one of the most important steps in buying an existing business. What does this process entail? You yourself must verify whether the seller—and therefore the business—is in compliance with tax laws and regulations. This step is crucial, as it may save you a lot of potential fiscal and legal frustrations.
2. Choosing an Industry That Isn’t Right for You
Before acquiring a business, take the time to clarify your motivations and your goals for the investment. Most importantly, you should think carefully about the type of business you want to run.
Think twice before buying a business that you don’t care about just so you can say you are a business owner. If you’re buying a restaurant but you have no previous industry experience, you may not have the right resources to bring the business to its full potential.
Take the time to carefully consider what you want to pursue. Invest in a business that you believe has genuine potential—it will make all the difference.
3. Buying Company Shares Instead of Assets
You will also be faced with the choice of purchasing a company’s shares or its assets when you buy out the business. While you can purchase one, the other, or both, acquiring assets is much more beneficial for you.
Buying a company’s assets includes buying the seller’s physical property and intangible rights. When you acquire a company’s assets, you do not inherit the company’s existing legal structure. Thus, you as the buyer are not responsible for the company’s past tax liability.
4. Not Allowing Enough Time for the Transition
It can be tempting to speed up the process of buying a business. You may want to shorten certain steps so you can start operating it the way you want.
However, make sure you give yourself enough time to make the transition period smooth. You need time not only for proper due diligence, but also for all the other factors that go into taking over a business. Some transitions take only a few months, while others can take up to a year.
Take the time to do it right and don’t make the mistake of trying to rush the process.
5. Lacking Motivation
Finally, you should know that the life of an entrepreneur is not for everyone. There are many risks associated with taking over a business, especially for first-time buyers.
Before you take the plunge, make sure you are really motivated and deliberate about your project. This maximizes your chances of success. If you’re only half-invested and unmotivated from the start, you will have a hard time keeping your business afloat. Buying a business is a big decision!
The Secret to Avoiding Business Buyout Mistakes? Take Your Time!
In short: there are many potential mistakes involved with buying a business. But if you take the time to do things right, you can minimize the risks and maximize your chances of business success.
Once you have started the buying process, you will need specialized tax accountants to guide you through incorporation and help you file your tax returns.
Contact the T2inc team today. We can’t wait to help your business reach its full potential!
Frédéric Roy-Gobeil
CPA, M. TAX
As President of T2inc.ca and an entrepreneur at heart, I have founded many start-ups such as delve Labs and T2inc.ca. A former tax specialist at Ernst & Young, I am also a member of the Ordre des comptables professionnels agréés CPA and have a master's degree in taxation from the Université de Sherbrooke. With a passion for the world of entrepreneurship and the growth mindset, I have authored numerous articles and videos on the industry and the business world, as well as on accounting, taxation, financial statements and financial independence.
