You likely wouldn’t purchase a car without taking a test drive, nor would you likely purchase a house and property without a survey of the land. The same thought process holds true when you are investing your time, money and resources in a business. Here are some of the things to be considered if you decide to purchase a business.
So you’ve decided to purchase an existing business. Before you go plunging into a major transaction such as this, you need to be aware of some items that can minimize or eliminate some headaches down the road.
First of all, be absolutely sure you know all there is to know about the business that you are buying, regardless of whether you are an existing owner, employee or new to the game. Are you familiar with and experienced in its industry? How long has the business been around and has it been successful? Have all prior taxes been paid? Where is the business financially and what is the source of this information? These considerations merely scratch the surface, but knowledge of what exactly is being bought is key.
So you’ve done your research and are ready to move forward. How should the transaction(s) be structured? How will capital or financing be obtained for the purchase? Should you purchase the stock of the business or just the assets? Are shareholder intangibles a possibility? Is there a preferred time frame for the transition? Are other potential shareholders, members or partners in agreement with the plans? Ideally, the purchase should be structured so that all parties feel they have won and are getting a fair deal.
Of course, we are not even near to being finished at this point. Existing management and employees need to be considered. Will they stay or go? Should you have agreements with the prior owners to ensure a smooth transition? What employee policies and/or procedures need to be created or revised? Business plans and budgets should be developed or revised and monitored regularly. Consider some of the expected changes when you take over. Where do you want the business to be in the coming weeks, months and years?
There is no substitute for good planning, and these are just a few of the things, obvious or not, that need to be addressed when you decide to purchase a business. Aside from legal matters, which are inherent to this subject, Rea & Associates can assist you in nearly every aspect of purchasing a business. Contact our professionals for more information.
This article was originally published in Illuminations: Facts & Figures from people with a brighter way, a Rea & Associates enewsletter, 8/24/2005.
Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.