5 Steps to Buying A Business

 

Buying a business is a huge commitment. Business ownership demands an incredible amount of time, effort, and money, and you constantly need to balance the risks and demands to ensure growth.

Below are five crucial steps you should take if you are planning on buying a business.

 

1. Do Your Research

Just like any large purchase, you should spend significant time researching and obtaining as much information as you can.

Find out about the business’ strengths and weaknesses – you need to know exactly what you are buying, and do your best to foresee any challenges.

For example, you should ask the owners for:
  • Financial statements
  • Lists of customers and suppliers
  • List of employees, including a breakdown of salaries and years of service
  • Reports of any major contracts necessary for the operation of the business, including the lease of the premises
  • List of all equipment and assets of the business
  • Any related debts, licenses and liabilities.

Now, not all business owners are going to happily toss you this information the minute you ask. They may even insist that you sign a non disclosure agreement to prevent you from using it for any other purpose other than buying the business. At this stage, you should have someone review any document that you are going to sign to make sure you are not binding yourself to some undesirable legal commitments.

2. Determine a Structure for the Purchase

The structure of the purchase means the most basic elements of the deal: who will be buying and selling; whether shares or assets will be bought; what price will be paid; and when and how that amount will be given to the seller.

3. Negotiate Other Terms

Contract terms are not just about the structure of the purchase and a sale date.  However, the number and type of other terms to be negotiated can vary depending on the risks associated with the business.
For example, to prevent the seller from creating a competitor business after the sale, you should insist that he or she sign a “Non-Competition Agreement”.

4. Have the Legal Documents Prepared

The buyer is generally responsible for preparing the legal documents, which are often complex and lengthy and are sent to the seller’s lawyer for review before being finalized. The first legal document, though, is short and simple; it is commonly called a “Letter of Intent” (or a “Term Sheet”) and is used to record the basic aspects of the deal early on. This helps to prevent misunderstandings and avoids having to renegotiate any key terms very close to the sale date.

5. Ask an Expert

There are many other considerations to take in account when purchasing a business, and this list should not be considered comprehensive. By going through us, we will protect you from as many risks as we can, and help provide you with a smooth transition into becoming a business owner.