When buying a business, there are certain considerations that must be addressed in order to make sure the transaction is precisely what is contemplated by the parties. Some of the issues that often arise can have drastic effects on the value of the business being purchased, the success of the venture and the potential risk associated with not only the transaction, but the business going forward.
- Corporate Structure: Do you need to set up a new corporation or LLC, or are you simply taking over the one that is already established? Is the current structure suitable for your needs? Your lawyer and CPA can assist you in making a determination as to which form of business entity is appropriate for your needs.
- Due Diligence: It is imperative that you take a comprehensive look at the business’ books and records. Doing so will help decrease your risk and should help confirm that the decision to purchase the business is prudent. On the other hand, certain issues may be discovered that indicate otherwise, causing you to reconsider the purchase or revise the terms of the deal.
- Accounts Payable/Liabilities: Often, payables and liabilities incurred prior to the transaction date are retained by the seller, but these issues can be negotiated to suit the circumstances of the particular transaction. In any event they must be addressed when structuring the deal.
- Be Specific: Make sure the terms of the deal are clear as to what you are buying. Is the current owner keeping anything, such as trademarks, certain accounts, or other assets? These are things that greatly affect the value of the business.
While just a few issues have been pointed out, there are many pitfalls associated with buying a business. Only through proper planning, negotiating and analysis can a buyer make the deal that he or she intends and that best suits his or her needs.