It’s Business, And It’s Personal

Due diligence advice when shopping for a business to buy

| May 23, 2017 | Buying & Selling Businesses |

The acquisition of existing internet businesses gives North Carolina residents opportunities to run companies that are already generating revenue instead of starting up a new venture. Purchasing one, however, requires due diligence with the most important aspect being a careful examination of the financial records of the company.

The seller should willingly share with a potential buyer records such as bank statements, profit and loss reports and tax returns. These records should reveal the cash flow and profits of the entity. Requesting the tax returns is especially important because a seller would have greater difficulty hiding information on these filings whereas other business records might report inflated revenue. A seller who rushes someone through the financial analysis might have something to hide and should be avoided. A seller offering a legitimate business will understand that the buyer needs time to review financial records.

A review of the seller’s business plan would also be in order, if one exists. For an e-commerce business that sells products, the buyer should consider whether the business resells other companies’ products or has developed its own brand. Important metrics for a software service business include the amount of subscribers and at what rate customers discontinue their relationship with the service.

Consultations with an attorney who advises people about buying and selling businesses could improve a person’s understanding of the legal risks and opportunities of a business acquisition. An attorney could warn the client if submitted records appear incomplete or too good to be true. An investigation into the presence of liens against business assets could be performed by an attorney. When a legitimate deal has been identified, an attorney could prepare the purchase agreement.

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