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Mistakes to avoid when purchasing a company

| Aug 9, 2018 | Buying & Selling Businesses |

Prospective North Carolina business owners need to gather as much information as possible prior to buying a company. Performing due diligence can help a buyer make a purchase that is more likely to be a profitable one. Furthermore, it is important that a buyer has proper liquidity prior to closing the deal. In many cases, the buyer will need to put up 15 percent of the purchase price when getting a loan from a bank.

Liquidity is also important after the deal as well. Buyers should have money for unexpected expenses such as hiring new employees after the sale is finalized. In addition to liquidity, a new owner will need to have working capital available. As part of the due diligence process, a prospective owner should look at how much money will be available during the first 90 days of ownership.

Understanding the financial side of a company is only one step in the purchase process. A buyer will also need to understand why the purchase is being made. Reasons to buy a business could be to obtain an appreciating asset or to gain more control over a career. Generally speaking, a person should buy a business in an industry that he or she knows something about to increase the chances of success.

Prior to engaging in these types of business transactions, it may be a good idea to consult with an attorney and other relevant professionals. An attorney may be able to find out if a company is the subject of any lawsuits or other issues that a buyer may become responsible for. Ultimately, it may make it easier to craft a favorable deal for the buyer.


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