Red Flags When Purchasing a Business

Purchasing a business is no easy task. It is a process that requires a great deal of research, contemplation, and lots and lots of paperwork! With so many forms to be signed and assets switching hands, there’s opportunity for mistakes that could really hurt you if left undiscovered.

Check out this handy list of red flags to look for when purchasing a business!

Wacky Lease Agreement

If you’re taking over a brick and mortar location (and you’re renting), you will either have to assume the previous lease from the old business owner, or you will have to negotiate a new lease agreement with the landowner. There may be unwanted fees and restrictions for terminating a lease early, so be sure to do your homework to make sure that you can get what you want at a fair price!

Sales Tax or Liquor License Issues

Is the business a restaurant or a retail location? If so, you’ll want to look into procuring a liquor license (if applicable) and looking into any potential sales tax debts. For restaurants specifically, only purchasing the assets of a business does not protect you from any previously existing sales tax debts—be careful!

The Books Look Cooked

This is one of the largest red flags you can see when looking into a business to purchase. You don’t want to get yourself into a legal quagmire by purchasing a business with a lack of records or records that look like they have been tampered with. Stay away!

Taxes Aren’t Up-To-Date

Outstanding taxes are less troubling than cooked books, but they will still cause you a lot of trouble. The trouble associated with getting your new business’s taxes and records up-to-date effectively increases the cost of purchase. Ask yourself: is it worth the trouble?

Equipment and Special Regulations

If your business uses specialized materials, heavy machinery, or any other type of technology that requires a great deal of expertise to handle, then you will be subject to additional safety regulations in order to operate. While you are shopping around, be sure to have an industry specialist check into these regulations for you to ensure you aren’t missing anything.

Beyond the legal restrictions that you’ll have to comply with, be sure to check that any specialized machinery is in relatively good working order—a costly upgrade might turn your purchase a money pit!