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For many, the American dream of buying a business is in queue right behind
owning a home. I was a teenager when I owned my first business. Since then I have bought or
started many businesses and helped others do the same. Here are some common mistakes I have
witnessed or committed myself.
Paying too much
This results from the combination of all other mistakes. Many new business owners set themselves up
for failure by paying too much, which results in higher loan payments, lower operating funds, and
reduced borrowing capacity.
Letting your emotions rule
If you have always dreamed of owning a business, it is very easy to get caught up in the strong
emotions invoked by seeing those dreams coming true. To counteract your emotions, take your time,
do your homework, and enlist the help of objective advisors.
Paying for potential
You should only pay for the business as it stands at the date of purchase, not what it could be in
the future. You will have to spend time, effort, and money to develop its potential. The seller
chose not to invest these things, so he does not deserve to be paid for them.
Not evaluating yourself
Do you have what it takes to run this business? Try to match your strengths to the important duties
you will be required to perform. Running a small business requires the owner to do many things. No
one can be good at them all, so make provisions for those areas in which you are the
weakest.
Some tasks like payroll and bookkeeping can easily be contracted to outside
vendors. Possibly your spouse, other family member, or a partner could do things that you
cannot or do not want to do.
Not building a team of experts
At a bare minimum, you should enlist the aid of an attorney and a CPA. The attorney can prepare and
review documents, help structure the deal, and make you aware of legal and liability issues. The
CPA can provide a financial analysis of the business, and advise you about tax and accounting
matters.
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