Trying to sell a business can be stressful and difficult—and for many owners, the need to sell becomes increasingly urgent. This is why it’s so important for buyers to be on high alert as they shop for a business to buy in Boston. Owning a business is a huge risk even in the best of circumstances. If the business you buy is rife with problems, you could be investing in a money pit. A business broker can help you evaluate the quality of the company you are trying to sell. Work with your team to check for these common buy-side M&A red flags.
No Clear Reason for Selling
Why is the seller exiting the business? If they can’t give a clear reason and you can’t find one, this is a warning that something bad might lurk beneath the business’s attractive veneer. Perhaps the company is losing value, is exhausting and demoralizing to run, or has already peaked. Maybe there are serious legal liabilities you haven’t considered. Dig deeply to assess why an owner is leaving, and recruit the assistance of an M&A team that knows how to ask the right questions to get complete and reliable answers about an owner’s exit motivations.
It’s normal for a few documents to turn up missing during due diligence, and a good owner will be honest about what’s not there and why. If the answers aren’t satisfactory, though, dig deeply or ask for alternative documentation. And if the owner cannot support any of their claims, can provide no evidence of profits or losses, and has ongoing tax or legal difficulties, it’s time to consider either backing out or asking for a change in sale price.
A Struggling Business or Industry
No matter how well the industry is doing or how adept you are at running a company, a struggling business is a challenging project to undertake. If the company is losing money or has other serious issues, you need to figure out the genesis of these issues, and work with a skilled team to assess how well—and whether—they can be fixed.
If the industry is struggling, this could be even worse. Consider how buyers of travel agencies from 20 years ago are faring now. A declining industry could be just a blip on the radar—or it could be the end of the story. Proceed with caution, and don’t even think about investing without first getting some expert insight.
A Poorly Run Company
It’s easy to picture yourself at the helm of a poorly run company, making big changes that make a difference. And sometimes, it all works out. More frequently, though, the cost of fixing management and operational issues is massive. You could find yourself firing and hiring an entirely new team, managing hidden legal liabilities, and doing damage control to fix a terrible brand reputation. If the company is poorly run—especially if the problems run deep and have lasted for a long time—proceed with caution.