Buying a Business
Purchasing a business is an exciting opportunity. Rather than starting from the ground up, you have the benefit of continuing on with something that is already (hopefully) successful. But you shouldn't just jump right in. There are many prudent steps you can take to make sure you're making a good decision, and set your new business up to succeed well into the future.
Doing your research
After determining the type of business you want to buy and your objectives, as well as researching the market, the real estate situation, the area, and anything else relevant to your industry in general, you also need to research the particular business itself.
You want to know not only how the business is doing presently, but how it has performed in the past, and how it is likely to perform in the future. In addition to profitability problems, there could be unforeseen costs associated with the business, or it might require work commitments for which you are unprepared. The business may also be involved in litigation or other disputes, either with vendors, service providers, customers or clients, regulatory agencies, or other businesses.
Ultimately, you'll need to look at the books of the business you're thinking of buying to get a full picture of the business' value. This includes accounting records, tax returns, contracts for which the business is liable, business assets, real estate issues, ADA compliance, liens, etc. You'll also need to determine what permits and licenses you might need to run this type of business.
Now that you've got a picture of where the business is at, you can determine what price you're willing to pay, what risks you're willing to accept, and what is open to negotiation.
Getting a good deal
The research and investigation you've done into the business and market conditions will put you in a better position to negotiate with the current business owner. During the course of the negotiation, you will probably submit a “letter of intent” or “memorandum of understanding” outlining the basic terms of the sale and determining the structure and schedule of events moving forward.
This agreement is not legally binding, but it helps move the process along. There will be some back and forth before you and the seller reach a final agreement. You and the seller will also be able to identify problems at this time and get them ironed out prior to closing the deal.
During this time, it's important that you work closely with your business attorney and accountant, in order to get input from all sides, and make sure everyone is on the same page.
Drafting quality legal documents
To ensure that all the i's are dotted and t's are crossed, your business deal will ultimately be reduced to writing. This may include a purchase agreement, transfers of interest, commercial lease assignments, or other documents.
The purchase agreement will identify the terms of the sale and identify each party's obligations under this contract. Many of the issues identified during the negotiation process can be smoothed out and memorialized in this agreement. It will also include any tasks required of the parties prior to closing.
Having detailed, well-drafted legal documents signed by both parties, can help avoid any disputes that might arise at a later date.
If you're going to purchase a business, it always helps to have your accountant and business attorney helping you along the way. They can help iron out any issues that might arise, as well as anticipate tax and legal problems, and help you adjust as you go. That way, hopefully the experience will not be a difficult one, and you can take over your new business at closing.
Helix Law Firm can help you purchase a business
If you're looking to purchase a business from someone else, we can help. We can negotiate with the other side, draft your documents, and help ensure a smooth transition to you, the new owner.