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How to buy an existing business
When considering buying a business, there are many factors that should be taken into considerations. There are also some steps you should take to ensure that you are protected as a buyer when you do decide to make the purchase. Buying a business is a big decision and one that should never be taken lightly. In this article we will take a brief look at the steps to buying a business the right way.
Step 1
Due Diligence
The most important step in making the decision to buy a business is due diligence. This is the process through which you investigate the business inside and out. Rushing into any business transaction is a bad idea.
Step 2
Asking Price of the Business
First and foremost is whether or not you could start your own company and be profitable for less than the asking price of the business. When you buy a business you are essentially buying a stream of income. Is this asking price justified by this income? To research a company’s financial viability you should look at tax returns, financial statements, assets, liabilities, and any agreements (such as building or equipment leases) that may come with the business. Other things to look for are liens, tax liens, and any current or pending lawsuits against the company. Taking your time with your investigation will quickly reveal whether the business is worth the asking price.
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Step 3
Negotiating the Terms
If you have made it past due diligence and you’re still considering buying the business, the next step is to negotiate the terms of the deal. When negotiating the terms of the take over make sure you consider all factors involved in the purchase. Are you buying just the assets of the business, or the entire entity? What is the purchase price? What liabilities will be inherited with the purchase? At this point you should write down these terms on a letter of intent. Ensure that the agreement states that it is non-binding to either party, as at this point you are just negotiating. Most business people do not get their lawyers involved at this point
Step 4
Documenting the Deal
Most people who have bought or sold a business have heard the term “Lawyers are deal breakers”. When it comes to protecting yourself when buying a business, however, a business lawyer is a requirement. The laws surrounding taking over a corporation are both complicated, and plentiful. You negotiated the terms of the deal, and now it is your lawyer’s job to document it. Your lawyer will also be able to advise you of any legal issues that may arise, and draft documents to protect you from any issues surrounding the takeover.
Step 5
Buying the Business
The terms have been negotiated, you’re lawyer has document it, now it’s time to complete the transaction. Usually your lawyer (and the seller’s lawyer) will assist you with the final signing of papers, and the exchange of money. If you have completed the previous steps properly closing the deal should be an uneventful affair. You and the seller sign papers, money exchanges hand, and your ready to take over the business on the date set out by the contract.
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