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Do’s and Don’ts of Buying a Business or Franchise

Three people talk over a table with a laptop, a phone, and other office supplies.

Three people talk over a table with a laptop, a phone, and other office supplies.

Three people talk over a table with a laptop, a phone, and other office supplies. 

Buying a business is a complex process but can be very rewarding. Here are some do’s and don’ts that will increase your chances of success, and help you avoid common mistakes.

Do’s for buying a business or franchise

  1. Decide whether you want to be in business full-time, part-time or with your family.

  2. Thoroughly investigate the industry first. If possible, work for someone else in the business.

  3. Objectively evaluate your experience, skills and preferences to determine if the business is a good fit for you

  4. Examine the underlying economics of the business more than how well or poorly it has been run by the current owner.

  5. Look to the seller as the best source of financing when purchasing a business.

  6. Pursue a structured "due diligence" process. Ask for help from your lawyer and accountant.

  7. Verify receivables in writing from people owing the business money.

  8. Perform your own evaluation of the business's location.

  9. Deal only with established, well-financed and widely successful franchisers.

  10. Determine the names of all franchisees in your area and go talk to them.

Don’ts for buying a business or franchise

  1. Let anyone else (like an expert or broker) decide for you whether or not you should buy a business.

  2. Buy a business or franchise without your lawyer approving all documents.

  3. Buy a business or franchise without your accountant reviewing their records.

  4. Rely on information or advice from franchise or other selling agents.

  5. Rely on pro forma financial statements (future predictions.)

  6. Be in a rush. (Wait patiently for the best opportunity by looking at lots of them.)

  7. Rely on the seller's evaluation of inventory and other assets.

  8. Deal with start-up or poorly experienced and financed franchisers.

  9. Hesitate to walk away from a deal that doesn’t have a strong possibility of success.

  10. Overlook comparing what you can do as an individual vs. as a franchisee.

The most important part of buying a business or franchise is to take your time, consider all the options, and have a good plan. MOBI’s template for evaluating a business and MOBI’s business plan template can help you get ready and avoid mistakes.

Jul 27, 2017