Buying out a business: Benefits and tips
Purchasing a preexisting business can make financial sense. Here are some tips to better ensure success.
Entrepreneurs can enter the business market in a number of ways, but the two most common are starting a business from scratch or buying a business that is already established.
Buying out a preexisting business can come with a number of benefits. As noted in a recent article in Entrepreneur, a website specializing in advice and insight for entrepreneurs throughout the world, these benefits include the preexisting presence of a customer base, an established cash flow and a workforce.
Tips to purchasing a preexisting business
The United States Small Business Administration (SBA) notes that entrepreneurs are wise to complete thorough due diligence before moving forward with the purchase of a preexisting business. This includes:
- Interest and talent. Before moving forward with a business agreement, take a moment to determine your interests and talents. Moving forward with a business that meets your skill set can give you an advantage.
- Paperwork. A large amount of paperwork is required with these transactions. For example, most businesses require licenses and permits to operate. The SBA offers a tool to help determine which documents are required for a business that you may be considering. Additional paperwork to review includes contracts for sales agreements, unions, and employment agreements. Articles of incorporation and any documents used for trademark, copyrights and patents should also be carefully reviewed.
- Finances. Determining the financial requirements for purchasing and advancing the business is a complex process. It is wise to look over financial statements and books as well as the previous three to five years of tax returns for the business. It is also wise to carefully value the business before agreeing to the purchase. Make sure your valuations line up with those proposed by the current owners.
These are just a few of the many considerations to review before moving forward with a business deal. Once all considerations are taken into account, an entrepreneur can move forward with the purchase.
Legal forms and advice online: One size does not fit all, the importance of legal counsel
Although there are a number of sites online that offer some guidance on how to go about purchasing a business and others that offer legal documents for this process, it is important to note that this advice and these documents are very generic. When it comes to success in business, one size does not fit all.
In order to better ensure your business interests are protected, it is wise to seek the counsel of an experienced business purchase lawyer. Even the SBA recommends the use of legal representation, stating that an attorney can help “review the legal and organizational documents of the business.” This legal professional is valuable, working to guide you through the process, drafting, reviewing and tailoring the documents that are used in this transaction to better ensure your interests are protected.