Making the decision to buy a business carries with it many decisions. Examining the financials, inspecting the physical assets, understanding their revenue streams and getting to know what people capital you are acquiring are just some of the items on your checklist. When buying an existing business, assess the aforementioned items carefully and with the assistance of a business attorney skilled in the intricacies of mergers and acquisitions. Have a well thought-out game plan for your due diligence to determine if the investment is worth it.
What is the Seller’s Motive?
The buyer should ask the seller of the existing business about actual reasons compelled him or her to sell the business. Make sure that the reasons are genuine, and they have nothing to do with the integrity and productiveness of the business. For example, are they selling because it’s not as profitable as they had anticipated, or are they just looking to retire from business ownership?
Understand the Sales Blueprint
Make an assessment on the periodic sales of the business so far and contemplate the rise and fall over time. The patterns pertaining to the rise and fall of sales can signify the efficiency of the business. It also helps to predict the output of business in the future.
Review Financial Trend Data
One of the attributes of a successful business is its profitability. A constantly increasing profit suggests that a business is highlighting a product or service that is out of the ordinary. Therefore, an exploration of the past profit records of a business can be helpful.
Review Legal Agreements When Buying an Existing Business
Analyze the legal contracts signed between the customers and suppliers carefully, along with all other legal documents as well. Thoroughly screen the legal documents, such as employment agreements and insurance policies, to avoid inconvenience in the future.
Are There Outstanding Liabilities?
Make sure to find out if the business has any debts to pay. Any outstanding debts or nonpayment might be indicative of an unstable business structure. Also, check for any refunds and warranties that are still available.
Evaluate the Business Framework
An evaluation of the business structure can give an idea on how well the things have been working within that business setup lately. This is an important factor to know because an unstable business setup can cause difficulties in handling the business later.
Identify Business Alliances When Buying an Existing Business
Find out if the business has been solely owned by one person or if it’s running because of a partnership. In the case of a partnership, make it clear whether the partners are exiting the deal or continuing. Discuss and document all these details thoroughly in a case of business purchase.
What Is Your Interest in Buying a Business?
The buyer should determine what interests them the most when buying a business, then make their decision according to that. The purchase of even a well-established business can prove to be a bad decision if the buyer doesn’t have the required skills to handle it effectively.
Understanding the Human Capital When Buying a Business
When buying a business, first you must know who the employees are, find out about their working relationships, and go through the contracts they have signed with the business. This may help you decide either to keep the existing employees or hire new personnel.
Know the Tax Implications When Buying a Business
There will obviously be a few tax implications on the business you want to buy. You must become well-versed with the taxes that are applied to that business.
Look at the Asset Sheet
Ask for the complete list of assets possessed by the business. This should be researched carefully since you might have to invest significantly into the reinvigoration of the business that is to be purchased.
Assess current customer feedback on the products or services provided by the business. If there are unhappy customers, it means the business may not be working efficiently. This will help you determine where it can improve.
Contact Us Before Buying a Business
Manning & Clair’s team of business attorneys have experience working with business owners and entrepreneurs on merger and acquisitions. If you are considering buying an existing business, contact us and we’ll help you navigate the path forward.
Manning & Clair Note: The information shared here is intended for a general overview and discussion of the subject. It is not intended to be, and should not be used as, a substitute for taking legal advice in any specific situation. Please consult an attorney for advice about your individual situation.