What are the necessary steps in buying an existing business?
Many entrepreneurs feel that there is less risk involved in buying an existing business than in starting a new one. Still, it is imperative that you investigate the proposition thoroughly before taking the plunge. Having an experienced, skillful business attorney is essential.
Pros and Cons of Buying an Existing Business
While buying an existing business may be appealing because you will have the advantage of greatly reduced start-up costs and the heightened possibility of an immediate cash flow, the purchasing cost is likely to be higher because you are buying a brand as well as an enterprise. Also, you should be aware that the business you buy may be counting as assets monies it is owed but that will be difficult, or even impossible, to collect. It's also wise to consider why the business is being sold.
First Steps to be Taken
Presumably, by the time you are seriously considering purchasing a business, you have evaluated, with input from family, friends, and professionals, which type of business you are most likely to be successful with. You will have considered your talents, interests, and limitations in terms of location, money, and time. Once you have decided on the type of business you'd like to purchase, you must:
- Obtain all necessary licenses and permits
- Check out the local zoning laws to make sure that you will be in compliance
- Check out environmental regulations in the area
Next, you will have to figure out a fair and equitable price for the sale of the existing business. This is where having a knowledgeable business attorney comes in very handy. He or she will guide you through a thorough examination of the business until you are satisfied that it is well worth purchasing. You will have to carefully peruse 3 to 5 years of financial statements, tax returns and a number of other pertinent documents, such as property documents, sales records, customer lists, advertising costs, and existing contracts and leases.
Papers to Sign
Once you have definitely decided to purchase a particular business, you and the seller will have to sign a Letter of Intent, stating the proposed price, terms and conditions of purchase, a Confidentiality Agreement, assuring the seller that you will not use their business information for any other purpose than deciding whether to buy it. The sale will be final when both you and seller sign the Sales Agreement for Buying a Business which will specify exactly what you are purchasing in terms of: business assets, customer lists, intellectual property and good will.