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What are some reasons business purchases fail?

You might be on the lookout for a new business to buy, perhaps to operate as a sole operation or to merge it with an existing company that you own. Buying a new business is something many entrepreneurs actually struggle with. If you end up with a business that you are incompatible with, you might lose a lot of money trying to reshape the business and will eventually have to sell it off.

As Forbes points out, just 1 in 15 aspiring small business buyers manage to go so far as to complete a transaction. The possibility of a transaction failure or ending up with a faulty business is a good reason to know some of the pitfalls that may derail a business purchase.

The business is a poor match

A major problem that business buyers run into is that the companies they buy are not a good fit for them. Even if you have found a business in the industry you specialize in, you should ask yourself if your current skill level will serve the company well. Are you suited to management, marketing, sales and logistics? If you lack the qualities that a new business needs to work, you might find it difficult to run your new business after buying it.

The buyer has no experience

If you are an experienced business owner, you likely already know the ins and outs of anything that is key to a successful business purchase. However, a large majority of people who want to buy a business have never completed a transaction before. An inexperienced buyer may bypass critical steps like due diligence or questioning a seller on key points. This lack of experience may lead to failed transactions or a business that is a poor fit for the buyer.

The buyer has the wrong expectations

It is natural to want to buy a low risk business, but it is important to recognize that no business is going to be perfect. Just about every business will have its risks. The question is whether you want to accept those risks and if you think you will overcome them. Also, while you should look for a good deal, do not hold out for an unacceptably low amount for a truly high quality business.

If you have concerns about financing to buy a business, you might check to see if the seller has a lending provision. In many small business sales, the seller offers seller financing. This may help you if you have problems securing a loan elsewhere. Seller financing may also indicate whether the seller has confidence that their business will be a good investment.