Buying A Business 2018-03-16T20:08:03+00:00

Buying A Business

Starting a business is always a risky proposition. Some entrepreneurs simply don’t want to deal with the headaches that come with building a business from the ground up, which include hiring staff, establishing cash flow and building a customer base. If you are looking to start a business, but do not have the wherewithal to start from scratch, King Law Firm Attorneys at Law, Inc. is here to help you gather all of the information you’ll need to purchase an existing business, that you’re making the right choice in what business you choose, and help you navigate your way through whatever obstacles may arise.

Advantages

  • Start-up costs are much lower when purchasing an existing business.
  • Existing inventory can help jump-start cash flow.
  • Existing businesses have an established customer base.
  • Existing businesses have an established and knowledgeable sales staff.
  • Policies and procedures are already in place.
  • It’s easier to secure financing and bank loans.
  • You are able to earn valuable legal rights, such as patents or copyrights.

Disadvantages

  • Purchasing costs may be higher than initial start-up costs for a new business.
  • The business may have outstanding debts you’re unaware of.
  • You may get stuck with obsolete inventory, outdated distribution methods or disgruntled employees resistant to change.
  • There is potential for a lower return on your investment.

What To Keep In Mind When Buying A Business

Although buying an existing business is less risky than starting a new one, you must still perform due diligence to ensure that the terms of the sale are in your best interest. Keep the following in mind when deciding on what business to purchase:

  • Always consider your talents and experience when choosing a business and make sure the business meets all of your interests.
  • Consider and weigh all conditions that are important to you, including location, company size and time commitments.
  • Consider costs of doing business in the area, including wages and taxes.
  • Always review the company’s history and find out why the business is up for sale in the first place so you don’t accidentally walk into a money pit. Examine up to five years of financial statements and tax returns, check to see if there are any leases that may need to be renegotiated with the landlord, and thoroughly research other important documents, which may include: property documents, customer lists, sales records, advertising materials, employee and manager information and contracts.
  • Review the company’s reputation and business relationships. Contact the Better Business Bureau, industry associations and licensing and credit-reporting agencies to make sure there are no substantial complaints against the business.
  • Make sure to obtain all licenses and permits that are required to operate the business. Federal state and local permit requirements can be found using SBA’s licenses and permits finder tool.
  • Make certain the business is following all current zoning requirements.
  • Examine the list of liabilities to determine potential costs and legal ramifications.
  • Check the environmental regulations of the area for which the business is located to ensure all EPA regulations are being followed.
  • Determine the fair market value of the business you are about to purchase. There are several methods you can use, including:
    • Capitalized Earning Approach: The expected return on investment from current investors.
    • Excess Earning Method: Similar to the CEA method, but separates the return on assets from all other earnings.
    • Cash Flow Method: How much of a loan will the current cash flow of the business support? This is used to measure the company’s ability to service debt.
    • Tangible Assets Method: Values the business based on tangible assets.
    • Value of Specific Intangible Assets Method: Compares buying an intangible asset in relation to creating one.
  • Create a letter of intent that spells out the proposed price, terms of purchase and conditions for the sale.
  • Talk to business owners, employees and clients or customers to learn more about the company from a third-party perspective.
  • Appraise all inventory and assets the company currently holds.
  • Review the company’s accounts receivable and accounts payable documents, debt disclosures, merchandise returns, customer patterns, marketing strategies, advertising costs, price points, market histories, current salaries, employment histories, OSHA Requirements and product liabilities.
  • Don’t be anxious or use all of your cash to purchase a business.

Closing The Business Sale

King Law Firm Attorneys at Law, Inc. can review or draft the sales agreement, as well as all other important legal and organization documents, before finalizing your purchase. We can also help in working out the adjusted purchase price, filing any required documents or tax information, and reviewing all required documents, which include:

  • Corporate resolution approving the sale
  • Tax releases that may have been promised by the seller
  • Promissory notes
  • Security agreements
  • Vehicle and asset transfer documents
  • The bill of sale
  • Transfer of copyrights, trademarks and patents
  • Settlement sheets (which list all financial aspects of the transaction)
  • Non-compete agreements

If you’re ready to purchase a business, contact us. We’re more than ready to help.

We offer plenty of information and resources to help you manage your business successfully, including:

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