Buying a Business - The 7 Deadly Sins
Buying a business could be the best decision for you but you need to approach the task methodically and with a clear understanding of yourself as well as the businesses you consider. Here are the mistakes many business buyers make.
We call them the Business Buyer’s 7 Deadly Sins:
Buyer Sin #1
Buyer’s failure to seriously investigate and understand their personal financial situation before they begin the process of investigating businesses to buy. How much ready cash do you really have for a down payment? Where is it? Will your family and friends really back you? What are the tax consequences of accessing the cash (401k/IRA)?
Buyer Sin #2
A Buyer’s failure to understand how much money they need to live on, month-to-month. This is often called your “burn-rate”, which needs to be absolutely as accurate as possible, by month, for at least 1 year.
Buyer Sin #3
A Buyer’s failure to understand the difference between profits and cash flow. Profit is what the books say the business made. Cash flow is what cash, the owner, can actually use. You can’t spend profits, you can only spend cash. You can have a lot of profits and no cash.
