What Not to Consider Before You Buy a Business

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Looking to invest in a business? Maybe it’s a seemingly thriving dental practice or a new start-up you’ve had your eyes on. Whatever it is, you’ve likely been given advice from a variety of sources, some you haven’t asked for and others you shouldn’t trust. If your seller or his agent gives you a report listing all the reasons why you should buy, take it with a grain of salt. At least that’s what Warren Buffet, CEO of Berkshire Hathaway thinks.

“Don’t trust forecasts or projections, especially from someone who has a financial interest in making those projections” – Warren Buffet.

Known as one of the most successful investors in the world, Buffet strongly believes that you shouldn’t trust the so-called experts, at least not when they benefit from the sale. There’s an innate bias by the person who prepared those projections; they may only reveal one piece of the picture or they could skew the numbers in a way that bends the truth. As Buffet said at the Berkshire Hathaway 1994 annual meeting, “Don’t ask the barber whether you need a haircut.”

So how do you determine if it’s a good idea to purchase a business? Do your due-diligence. Roll up your sleeves and do your own research. That’s how Buffet, one of the wealthiest people in the world has built his fortune and he believes you can do the same.

Consider annual reports, existing assets and employees, and the brand. How loyal are the clients or customers to this brand? Who are the major competitors and how does their product, process, or service compare?

Buffet’s advice doesn’t mean you need to be a highly successful investor in order to make important decisions like these. It also doesn’t mean you can’t trust anyone but yourself. Instead, it’s a warning to consider who you take advice from and what stakes they have in your investment.

If you need a trusted source to evaluate your next business decision, give us a call. We have experience providing unbiased evaluations of small to mid-sized companies with specialized experience in dental practices and Dental Service Organizations (DSO). Call 973-809-5466 to get started.