Why Should You Buy a Business?

Why Should You Buy a Business?

Purchasing an existing business has numerous benefits. The company, physical location, employees, and customer base are already established, saving the buyer the time and energy required to start a new company.  Buying an already established company is appealing to many individuals because it is less expensive than attempting to start up a new business.  Jordan Guydon LLP can help you make informed legal and business decisions and make the process of buying a business as hassle-free as possible.  We focus on providing legal assistance to buyers of businesses!

What Are the Benefits of Buying an Existing Business?

Purchasing an existing business can be less risky than starting from scratch.  It usually has an established customer base, a network of professional contracts, and a financial rack record that will make securing finance easier.

An existing enterprise will require less work in, so that you can focus on growing the company, rather than getting it off the ground.  You may also have an instant influx of income, as compared to continually pumping cash into a startup.  Other benefits and advantages include:

  • An established customer base;
  • Established location;
  • Easier to handle and manage from the beginning; and/or
  • Comes with inventory and machinery.

What Should You Do Before You Even Consider Purchasing an Existing Business?

Before you consider buying an existing corporation, it is important to perform due diligence.  A team consisting of an attorney, accountant, banker, and possibly a broker can assist you in finding and securing the right fit. There are many questions and issues to consider before you buy, including:

  • Is it a good fit for what you are trying to do?
  • Legal and ownership structure?
  • What debts does the company have?
  • Does it have any liabilities you need to consider?
  • Review the company’s inventory, furniture and fixtures, and legal documents such as charter documents and third-party contracts.

When you buy a business, aside from the income and assets you also take on the company’s debt.  While it may seem to make a good profit, it can also be eaten up if it is riddled with debt.  If you have the money to pay the debt, then your new venture may thrive.  It all depends on your situation and whether or not you can afford to not just purchase the company, but also accept its burdens.

Questions You Need to Ask About the Existing Business.

There are many important questions to ask before purchasing a business.  The following is a partial list of important due diligence considerations:

  • Why is it for sale?
  • What does its future look like, and why?
  • How does it market itself and attract customers?
  • Has the company changed?
  • Is there pending litigation against it or the owners?
  • What about contracts, particularly government contracts?

Other important inquiries include information pertaining to leases, licenses, tax liabilities, patents and trade secrets.

Finally, absolutely make sure to talk to its customers and suppliers.  Get as much information as possible before you decide to move forward.  It is always a wise idea to get a credit report, check with the Better Business Bureau and conduct litigation/judgment/lien searches.

What to Do During Negotiations?

If you are considering purchasing an existing company, you’ll want to get the most value for your money. You will need to strategize and take into consideration several aspects to negotiate the best deal.

  • Determine the company’s value.
  • Come to the table prepared: Typical purchase agreements can have over fifty different clauses to negotiate.
  • Prepare yourself for the “what if’s”: Know what your position and rebuttal will be on points the seller may bring up.
  • Specify terms of the sale: Make sure to include anything that you feel is important.
  • Make a reasonable offer: You do not have to offer the asking price, but offering a figure that is far below what is being asked may cause a seller to terminate negotiations.

Financial Past of the Business.

Before making an offer on an existing business, a buyer should thoroughly research the company’s financial history.  Items examined should include:

  • Certified financial and tax records of the existing company if available;
  • Employee files, contracts, and benefits;
  • Current and past lawsuits, if applicable;
  • Any contracts the company has with other companies;
  • The business’ lease(s); and
  • Any other documents that will apprise you of the problems and potential of the business.

How Much Should I Pay for a Business?

Paying the right price for a company is very important.  There are a number of different ways to figure out the value of a business before purchasing it.  Here are a few:

  • Capitalized Earning Approach: This approach determines to the return on the investment that is expected by the buyer.
  • Excess Earning Method: What are all the different ways you can earn through the company?
  • Cash Flow Method: Determine what the typical monthly cash flow is and whether the purchase price of the business is high or low compared to the cash flow.
  • Tangible Assets (Balance Sheet) Method: How much assets come with the purchase.
  • Value of Specific Intangible Assets Method: What is the value of all the assets and equipment you are purchasing.

Should You Consult an Attorney When Buying a Business?

Business acquisitions can be risky! Business acquisitions generally involve many negotiations and contracts.  Jordan Guydon’s business attorneys can assist you in the negotiation process to help you get what you want for your future business.  We can also help you sift through financial documents to determine what is relevant to the purchase transaction. Jordan Guydon’s lawyers can also represent the buyer in solely the real estate sales process, should the buyer ultimately wish to buy only the business’ real property.  We can help secure the best deal for you, and the best possible outcome for your investment. Jordan Guydon LLP can help you make informed legal and business decisions. Contact us for a free initial legal assessment to learn how we can help you plan for success.

WE CAN HELP!

For more information or for a free consultation, please call or email Edsel Guydon at 703.865.8699 or eguydon@jordanguydonlaw.com or call or email Daryle Jordan at 703.865.8699 or djordan@jordanguydonlaw.com.

Please see:  jordanguydonlaw.com.

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