What to Consider Before Buying a Business

What to Consider Before Buying a Business

 by Donna Ray Berkelhammer

Buying an existing business can be exhilarating and frightening all at once.  It is important to find out as much about the business, its operations and finances as possible before purchase.  Typical asset purchase agreements give a set period of time for investigation (often called due diligence).

Here are some matters to investigate:

  • Why is the Seller selling?
  • What are the greatest challenges in the business during the past few years?
  • Get three years of financial information including company tax returns if possible.
  • Does the business have structured systems and processes that would allow operations to continue relatively seamlessly upon a change of ownership and management?
  • Review key contracts of the business. Are they assignable? Do you want them?
  • Review the intellectual property.  Are there patents owned by the business or are they in the name of the founder(s)?  Can the name, logo and slogans be registered as trademarks?  If so, have they been? Is all content on the web site properly owned or licensed by the business, including logos, art, photographs and the site itself? How easy is it to change web site hosts?
  • Are the current employees properly classified and have they been properly paid overtime and other benefits?
  • Are all taxes of the seller current, including income, payroll, real estate and business personal property?
  • Are there any liens against the Seller?  Are any assets encumbered by security interests?
  • Are there key employees who need to stay to make the business successful during the transition?

Remember, the business broker works for the seller, and the contract will say you as the buyer cannot rely on any statements or representations made by the broker.  If you have questions, contact one of our business attorneys.

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