When you are looking to purchase an established business, it is up to you to perform due diligence checks on the company and ensure that there is nothing untoward going on. There are some warning signs to look for when making your purchase, but you should also ensure that you use the services of an experienced professional to help you make these checks thoroughly. Below are some signs to look for which may mean you are being sold a lemon.
Honesty Is Always The Best Policy
You will want to ensure that you are doing a business deal with an honest person, and you should use all the tools at your disposal to make sure that this is the case. Look at the books carefully and take note of the revenue, as well as the discretionary income that the owner declares. If you see that the income that the owner is declining while the revenues stay the same, ask them on this point and see what they say. There could be many reasons for this, but it is also something that should set alarm bells ringing. When you come across a situation such as this, speak to companies with expertise in this matter such as River City Conveyancing expert Brisbane property lawyers.
The Money Does Not Add Up
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When you are looking at the financial side of a business to purchase, it does pay to use the services of a company to look at this aspect in detail. You will want to check the internal financial information against their tax filings for five years if possible, as the minimum three years. Do not accept a review done by the business itself, and if there are any discrepancies, you can use a CPA firm to investigate the matter for you. If the books do not add up, then this is a warning sign to stay clear!
Taxes Are Not Up To Date
Among the mistakes you have to avoid when purchasing a business is failing to do due diligence from behind your desk, wherein you should learn what you can about the company you are eyeing at. The information you have to get includes the company’s taxes. If the tax situation of the company is not up to date, this is another red flag situation that should set off warning bells. Remember, if you purchase a company that still has outstanding tax owed, you will be liable for this. The last thing that you want is to be audited and find out that you owe a significant amount of money in taxes for the business that you bought.
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Failing & Poor-Quality Equipment
If as part of the purchase you also take ownership of equipment, you will want to evaluate the condition of this equipment and judge the likeliness that it will need to be replaced soon. If the equipment is outdated or on its last legs, this could make the financial liability of purchasing the business a nonstarter.
Purchasing a business can be a long and drawn out process, but without doing things correctly, you could end up buying a lemon.