Risks When Buying
a Business
03.19.2025
Acquiring an existing business offers a quick start in entrepreneurship, with immediate clients and revenue, at first glance it seems like an excellent investment for a secured future.
However, financial risks can compromise the investment. In this blog we'll talk about the risks and moments you need to pay attention to before purchasing a business.
Evaluating the company's financial condition
It's necessary to determine whether the business you want to buy is generally profitable or records losses for the recent period. Analyze revenue and profit trends from recent years. Constant growth is a positive sign, while decline and even stagnation indicate potential problems.
Checking accounting and balances
Request and carefully analyze balance sheets, profit and loss accounts and cash flows from recent years, ensure that all financial reports have been submitted on time and are correct.
If you have doubts, request an audit to verify the accuracy and correctness of accounting data as well as detecting irregularities of the company you intend to purchase.
Identifying hidden debts
Along with the acquired company, so you don't end up with its debts too, pay special attention to contracts and agreements concluded by the company, for example loan contracts, supplier contracts or rental contracts, ideally if you can also receive verification documents with the company's suppliers, at least with the largest contractors.
Check if there are ongoing lawsuits or litigation, these can lead to unexpected debts.
To ensure against such problems, a good decision would be to conclude a notary agreement that stipulates that all debts
that were not detected when purchasing the company and belong to the period until the company purchase, remain the responsibility of the previous owner.
How does the business actually work?
Don't limit yourself to numbers, you need to understand how the business works day by day: who does what, how processes are conducted and what are the relationships with suppliers and clients.
Find out what your responsibilities are as the new director and what knowledge you need to possess, often when administration changes the business suffers because a large part of important operations were performed specifically by the leader. A business without clear procedures and a system that works "without a head" is not a successful one.
Checking the company's reputation
Look for reviews and comments online, on social networks and other platforms, talk with loyal clients to get direct understanding of the quality of products or services offered.
You should also evaluate the company's position in the market, competition and industry trends and analyze the team structure, employee competencies and the risk of losing key personnel after the business sale-purchase procedure.
Purchasing a business is a major decision that requires careful analysis and a prudent approach.
