Buying a business is not covered by consumer rights legislation and it is down to the buyer of the business to ensure that the business is what they expect it to be. The legal principle governing the sale of a business is known as, “Caveat Emptor”, which means that the buyer alone is responsible for checking the quality and suitability before a purchase is made.
If you decide to buy a business, it is essential you carry out a comprehensive appraisal of the business to establish its assets, liabilities and evaluate its commercial potential, as well as to reveal any negative aspects the seller has not highlighted. Understanding both the opportunity and risks of a business will put you in a strong position to decide whether you wish to proceed and help you negotiate the best price for the business.
Buyers should always seek professional advice from a lawyer and accountant when conducting due diligence.
When buying a going concern, due diligence is relatively straight forward as there will be information on the current performance of the business and its assets and liabilities. This is not the case when a business is dormant or not currently trading, so it’s important to establish it’s potential in the short, medium and long term. If the business is a web based business, drop ship, or affiliate marketing it is important to understand what you are buying, and whether it’s right for you.
Always exercise caution and common sense, just because something sounds great, doesn’t mean it is.
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