Four Important Questions to Ask Before Buying a Business
Whether it is to get a new enterprise off the ground, or to expand an existing company, Buying a Business is one of the most important decisions an entrepreneur will ever make.
What Are You Buying?There is more than one way to purchase a business. Do you want to purchase only the physical space, or the furnishings, equipment, and other inventory? Does the acquisition include the intellectual property of the business, such as the name, logo, trade secrets, and other assets? You will need to think carefully about what is best for your business goals. Our attorneys will provide reliable counsel to help you make the right choice for your business. We will draft a purchase agreement that will clearly state the terms and subject of the transaction, and ensure that an accurate inventory and inspection of the items is conducted before closing.
Are You Buying a Business That is Financially Sound?No matter how successful a business appears, never take it at face value: you must perform due diligence to confirm all the finances check out. Otherwise, you may end up inheriting any outstanding loans, liens, tax bills, and other obligations. Examine the financial and cash flow statements, balance sheets and tax documents going back at least three to five years. See how much money the business has in accounts receivable versus accounts payable, how much bad debt it has written off, and whether there are any outstanding debts. Look out for any seller that claim not to have this information, or is uncooperative in providing it * that is a red flag.
Does the Business Have Legal Problems?Is the business you are buying presently in a lawsuit, or about to be? Is it current on all tax obligations and compliances with local, state, and federal agencies? Does it have adequate insurance coverage? Many of these liabilities will become yours to bear if they are not resolved first. You may also want to consider the state of the business* intellectual property * such as its logo, slogan, brand name, etc. * and whether you wish to acquire these as well. Most firms should have an employee manual or company policy that you should examine closely to understand the business better.
Are There Issues with Any Employees?If you want to retain all or some of the business* employees, you want to ensure they will be a good fit for your firm. If possible, determine the turnover rate and examine whether the employees seem professional and motivated * these details can say a lot about the quality of the business you wish to acquire. It can also give you some insight as to any potential issues with the business and its owner. Make sure there are no current or pending disputes or litigation involving employees, which may cause problems for you. Plus, it never hurts to get familiar with your new staff.