What Do I Need to Know before Buying an Existing Business?
Provided by HG.org
Buying a company requires various processes before the documentation has been finalized and the ownership papers exchange hands. This means due diligence, going over provisions, understanding the financial data, asking and receiving answers to questions and knowing what is being purchased.
Existing businesses that have a steady stream of revenue may be attractive to new buyers. However, there are certain processes and items that need to be completed before the ownership document is signed and the contract has been completed by both parties. For the buyer, this means fully researching all matters of the company and having experts assess and examine various aspects. The seller needs to ensure that certain conditions and provisions will be kept for the concerns he or she has about the exchange. When the arrangement has passed a certain point, these processes are finalized and both the buyer and seller are satisfied.
The prospective buyer should hire additional experts for tax purposes to assess the taxation of the targeted business, an accountant to review the books and a lawyer or multiple lawyers to fully examine the legal work within and around the company. With these persons, going through the paperwork is often a much easier task and requires less time wasted. It is vital that the type of purchase is considered as well. It is recommended to only buy the assets so the liabilities are excluded, other items not needed are not included and it is possible to acquire these assets through another company. With these steps, the potential owner is at an advantage most individuals may not have knowledge of when buying out a business.
Acquiring Professional Help
When buying any existing business, it is imperative the prospective buyer has hired certain experts and professionals. For tax documents, a tax expert should be of assistance. To understand the clients, revenue, outgoing expenses and similar concerns, an accountant is best. For legal matters to include sanctions, violations, civil suits and criminal activity, a lawyer is hired and retained throughout the life of the company. With this type of help, the possible new owner is able to discern the paperwork and numbers along with understanding if the company is worth the time and effort to purchase and invest in for the future.
Some individuals considering a company may merge his or her business with the other entity. Others decide to purchase assets or equity. Which option to choose is generally based on the information obtained during due diligence and at the advice and recommendation of professionals hired. If certain liabilities are not as crippling, the individual may decide to purchase equity. However, if he or she wants to avoid these debts, the assets are what should be acquired. This route lowers tax disadvantages and may ensure liabilities through debts, loans and other expenses are removed from the purchase. However, some instances could lead to an equity buyout as more beneficial.
Negotiations for Purchase
When all initial processes have been accomplished, the prospective buyer may start the buying procedure. Communication is crucial to learning any other concerns that could impact the sale. There are other aspects such as contaminants in the land or on the property. Lists of inventory, substances and materials used should be acquired. Tax and client relationships may reveal any complications with projects and business ventures. Other investigations could show that employees have made several complaints about management. Some clients may owe payments to accounts receivable that should be collected before the transfer in ownership. The lease should be considered.
Documentation for purchase and negotiating the sale may also require analysis of certain contracts and legal matters. If the seller has a lease in effect, it is important to discern if these conditions will carry through after the purchase. Some expenses may be hidden such as advertising, marketing and online resources not included in standard paperwork. When all concerns are satisfied for the buyer, he or she may negotiate a letter of intent for important terms of purchase. This usually results in the first stages of finalizing the purchase. All other documentation should be filed through a lawyer.
Business Lawyer Help in Existing Business Purchase
Contracts, paperwork and files are negotiated between the buyer and seller after all other considerations have been resolved. It is essential to hire a lawyer for the closing processes so the purchase is legitimate and clear of complications. He or she may walk the individual through closing the sale and editing certain forms before they are signed.
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.