Thinking of Buying a Business? Watch Out for These Warning Signs

buying a business, Wheaton business lawyersAre you considering buying a business? Being a business owner is a challenging and rewarding career, but it can also be a risky endeavor. Many entrepreneurs purchase a standalone company or a franchise location with the best intentions, but then later realize that they have gotten into something they wish they could get out of. While you are on the hunt for your new business venture, make sure to be on the lookout for the following telltale signs that a particular business purchase is not in your best interest.

The Franchisor Seems Focused Only on Upfront Fees

Many potential business owners choose to invest in a franchise location of an existing company because it is often less risky than investing in a standalone company. When you buy a franchise, you already have an established brand and business model. Furthermore, you will likely receive guidance, supplies, and training from the corporate team. However, an unprofessional or incompetent franchisor can nearly ruin your chances of success. If the franchisor you are considering purchasing from offers to decrease future royalties in exchange for increased upfront fees, this could be a red flag that the company is desperate for funds.

The Deal Feels Too Good to Be True

In business, when something seems too good to be true, it usually is. Make sure to do your due diligence and research any potential businesses thoroughly. Check that the information provided by the current owner matches financial documentation and records. If you can, look at the last five years of the company’s federal and state tax returns. When a deal seems impossibly good, this is usually an indication that you are missing part of the puzzle.

The Current Business Owner Lies or Withholds Information

Anyone selling a business should expect to provide potential buyers with ample information about the business. If a business owner is not interested in providing you the information you need to make an informed decision, he or she may be hiding something. Business owners who are worried about sharing sensitive financial data or other company information should utilize a nondisclosure contract to protect themselves. Concerns over confidentiality is not a valid excuse for withholding critical information from potential buyers. The owner should also be able to tell you why he or she is selling. An owner who cannot answer this question may be selling because the business is already failing.

Contact a DuPage County Business Lawyer

For help with buying a business or for other business law concerns, speak with an experienced Wheaton business law attorney from Stock, Carlson, Oldfield and McGrath LLC. Call 630-665-2500 today to schedule a consultation with our knowledgeable team of business law professionals.

Sources:

https://www.entrepreneur.com/article/195020

https://www.forbes.com/sites/chrismyers/2018/07/06/the-top-ten-red-flags-to-watch-out-for-when-buying-a-franchise/

Common Reasons to Consider Selling Your Business

selling your business, DuPage County business lawyerFor many people, owning and operating a small (or medium-sized) private business is the realization of a lifelong dream. Reaching one’s dreams, of course, does not happen without many years of hard work, focused research, and an attitude of perseverance during the difficult times. When you stop to think about how much time, talent, and treasure that you have invested in your venture, you could be forgiven for being hesitant to realize that your run with the company is nearing its end. There are a few things you should keep in mind that might be indications that you should consider selling your business.

Reason #1: You Are Losing Your Passion

When you first started your business, you probably woke up every morning excited to get to work. Building a successful business and satisfying customers were more than daily operations—they were ideals that drove and motivated you into working as hard as you could.

They say that if you love what you do, you will never work a day in your life. While this may not be exactly true, as many days certainly require hard work, things are certainly easier while your passion for your business is at its peak. As the years have passed, however, you might find that running your business feels more like a chore than ever before. If you notice that you are no longer as excited about your company as you once were, it is probably time to start thinking about how you will get out.

Reason #2: Too Big, Too Soon

Believe it or not, it is possible for a business to grow too much too fast. When your company was small and you had just a few people working for you, you might have been fully capable of running day-to-day operations as well as performing your “owner’s” duties. If the business has exploded, however, and now you are faced with serving more customers that you initially expected to serve, the scale of the business could be beyond your capabilities.

It is important to recognize and acknowledge your own limitations. In a case like this, you could even be looking at a tremendous financial opportunity. A fast-growing company is often extremely attractive to larger companies and investors who might be willing to give you top dollar for the business you have built. If you are interested in doing so, you might even be able to remain a part of the company in some capacity after the sale is completed.

Reason #3: An Economic Downturn

Some industries are built around annual business cycles. Others have cycles that are better measured in decades. Still other sectors explode in popularity all at once and then fade in obscurity—sometimes permanently. Business trends and advances in technology can have a direct impact on your company’s success and long-term profitability, and you may need to adapt or get out of the way. For example, the online shopping boom of the last few years has pushed many “brick-and-mortar” retailers to the brink of collapse. If the evolution of your industry has you seriously questioning your future, now could be the time to consider other options.

Call a Wheaton Business Lawyer

For more information about selling a business or advice about knowing when to sell, contact an experienced business law attorney in DuPage County. Call 630-665-2500 for a confidential consultation at Stock, Carlson, Oldfield & McGrath LLC today.

Sources:

https://www.businessinsider.com/millennials-are-killing-list-2017-8

https://www.entrepreneur.com/article/247990

Reward-Based Crowdfunding Can Result in Legal Problems for Entrepreneurs

DuPage County business lawyersOne of the countless ways the internet has changed the business world is through the introduction of online crowdfunding. Through websites like Kickstarter and IndieGoGo, entrepreneurs can obtain the capital they need to begin businesses and create products. These websites are referred to as “reward-based crowdfunding” because there is generally an incentive for people to invest in the various projects. Funders may receive the actual product being developed or other benefits in exchange for their investment. Although raising capital in this manner has been wildly successful for some entrepreneurs, others have found themselves in legal trouble after becoming involved in a crowdfunding campaign.

You May Be Entering into a Contract Unknowingly

Because crowdfunding is relatively new, the legal ramifications of failed crowdfunded projects are not completely understood. Recent lawsuits against some entrepreneurs who used crowdfunding to gain resources prove that crowdfunding is not a perfect solution for those lacking start-up funds. If you wish to use crowdfunding to finance your project or business, it is vital that you understand the risks that should be avoided.

When an individual agrees to take money from people in exchange for certain benefits, he or she is likely entering into a contract with the funders. If you are not careful with the language you use to inform investors of your offer, you could be creating a contract without even realizing it. This means that when investors do not receive the benefits that they were promised, they can file a breach of contract claim against you. Forming an LLC is one way that you can help protect yourself from potential personal liability if your intended project fails.

False Advertising and Consumer Protection Laws

Those who wish to use crowdfunding must also be careful not to overpromise what their funders will receive or what the project objective is. Misleading language or incorrectly describing your project can make you vulnerable to claims of false advertising, negligent misrepresentation, and fraud. You can also be held accountable for under-delivering on your promises under consumer protection laws. It is essential that anyone using reward-based crowdfunding avoids misrepresenting both the project/product itself as well as the benefits investors will enjoy. Not only can claims be brought against you by funders, but claims can also be filed by governmental agencies.

Tax Implications of Crowdfunded Projects

Many people using websites like Kickstarter do not realize that the money they receive is taxable income. If you create a rewards-based campaign, you will be required to pay taxes on the money you take in from investors. Many entrepreneurs using crowdfunding to finance their project make the mistake of forgetting about this significant expense. It is crucial that anyone using a reward-based funding system consider the taxes that they will have to pay when creating the project budget.

Contact a Glen Ellyn Business Lawyer for Help

For sound legal guidance on a number of business concerns, contact the business law professionals at Stock, Carlson, Oldfield and McGrath LLC. Speak with a knowledgeable Wheaton, Illinois business law attorney by calling 630-665-2500.

Sources:

https://www.thebalancesmb.com/crowdfunding-legal-issues-for-small-businesses-398020

https://www.msn.com/en-us/news/technology/crowdfunding-is-a-popular-way-to-raise-money-just-dont-count-on-getting-a-refund-if-something-goes-wrong/ar-BBVX9FT