Are you thinking of purchasing an established business? I wrote a blog in April of this year on the topic of buying a business and what you need to know, and recently received an email from a business contact giving some additional information I want to share with you. The information from the prior post along with today’s blog will give you lots of great tips to help you decide if you are interested in taking on the endeavor of purchasing a business.
Here is what DeAnn Chase, an attorney with Chase Law Group, had to say:
If you are thinking of buying a business, including a franchise or professional practice, you will find that the process involves strategic legal and financial planning and decision-making. Once you have identified a business that you are interested in purchasing, the first step is to conduct “due diligence” to acquire all the relevant information about the state of the business and to learn about potential risks and liabilities.
Due Diligence. When due diligence is performed, the purchaser should thoroughly examine the financial, legal, and structural nature of the business. This inquiry typically requires sellers to provide detailed documents regarding the business’s current financial status and obligations, legal and insurance compliance, potential or pending claims or lawsuits, the status of leases, the assignability of existing contracts, and other information about the business operations. If the existing business has employees, it is important to take into account satisfaction of payroll and other obligations relating to employees, as well as whether the purchase will carry on with the existing employees. It is important to work with a team of trusted advisors, including an accountant and business lawyer to perform this critical task.
In addition to the purchase price, the parties must agree on the scope of the purchase, such as whether the purchaser will be buying only the assets of the business by way of an “asset purchase,” or whether the purchaser will be assuming both the assets and liabilities of the existing concern. We recommend consideration of forming a new legal entity, such an LLC or corporation, before the consummation of the purchase.
Financing. Depending upon the financial situation of the purchaser, traditional bank financing may be available. Many banks provide financing that is backed by the U.S. Small Business Administration. It is important to keep in mind that obtaining SBA financing is an intensive process but may be worth the effort in many cases. In instances where the buyer cannot acquire adequate financing from a traditional lending institution or does not have enough capital to personally finance the deal, seller “carry back” financing may be an optimal choice. In these cases, the seller agrees to receive payments of the purchase price over time, with interest, usually under a separate promissory note. In most instances, the purchaser will need to provide a personal guarantee, and/or the promissory note will be secured by the assets of the business.
Once the details of the purchase transaction are negotiated, it is critical to have appropriate documents drafted and signed that set forth the respective promises and obligations of the purchaser and the seller. Our attorneys have a great deal of experience in advising purchasers and sellers of businesses, franchises and professional practices. Call us today and mention this article for a complimentary consultation.
DeAnn Chase is the Founder of the Chase Law Group, the “Go-To Law Firm for Business and Real Estate”, and can be reached at 310-545-7700 or www.ChaseLawMB.com. Reach out to her if you have any questions about the above information.
