Naperville Business Lawyer Discusses Red Flags When Buying a Business

Being a business owner is unlike any other type of job. When you buy a business or start a business, you become your own boss and gain the ability to control exactly how your company is run. Oftentimes, buying an existing business presents fewer risks than starting your own business from scratch, but an entrepreneur looking to purchase a business must still be diligent in choosing the right business venture. There are certain “red flags” which may be warnings that a business opportunity is not as great as it appears on the surface. If you are considering buying a business, read on to learn about the warning signs experts say are indications that a particular business purchase may not be in your best interest.

The Current Business Owner Is Not Forthcoming with Information About the Business

One major warning sign that a business may not be as perfect as it seems is an owner who lacks transparency or does not know vital information about the business. When completing your due diligence about a business purchase opportunity, you will want to ask the current owner many questions such as why they have chosen to sell. An owner who seems hesitant to answer questions or is overly optimistic can be a warning sign that he or she is not being completely honest. For example, if you ask the owner a question such as, “Where is the greatest need for improvement in your business?” and they cannot answer, this could be a sign that the owner is either dishonest or clueless.

The Deal Seems Too Good to Be True

As with many things in life, if a business opportunity seems too good to be true, it probably is. When researching a business, make sure to double-check that the information the owner is providing matches up with financial records and other documentation. Also, check that the internal financials are consistent with the last five years of state and federal tax returns. Remember, if you purchase a business which has not been paying its taxes in full, you could be held responsible for paying the total amount of back taxes in the future.

The Franchisor is Unprofessional or Only Focused on the Short-Term

Many business owners choose to purchase a franchise instead of a standalone company. While this option certainly comes with many benefits such as an established business model, support and training from the corporate team, and brand recognition, buying a franchise is not always your best option. If a franchisor is more interested in up-front fees than continuing royalties, this could be a sign that the franchisor is not invested in your long-term success and is instead only looking for a quick way to increase cash flow. Furthermore, a franchisor who is unprofessional or reluctant to provide contacts for other franchisee owners is a serious red flag as well.

Contact a Naperville, Illinois Business Attorney

For help with buying a business and more, contact a knowledgeable DuPage County business lawyer from the Gierach Law Firm. Schedule a consultation by calling us at 630-228-9413 today.

Sources:

Entrepreneur

Forbes