Entrepreneurs who wanted to buy an existing business.
What Is It About:
This tutorial will talk about the important information that has to be researched before buying the business.
Where Can Resources Be Found:
Resources are available on this tutorial under recommended resources.
When Is The Best Time:
After you have found the business that you intend to buy, it is important that you investigate to evaluate it thoroughly.
How To Do It:
The tutorial will provide the list of important information that has to be investigated before finally deciding to purchase the business.
For some entrepreneurs, buying an existing business is a preferred option than starting from scratch. Some of the reasons when purchasing a business include, the legwork, hiring of employees, negotiating a lease, and establishing a customer relationship have already been done. However, when buying an existing business, it is still necessary to do a little more homework and research.
Before you seriously decide on buying the business, it is crucial that you find out as much information as you can about it. To help you with your research, read through the tutorial for the list of information to investigate.
1. Letter of Intent
A letter of intent is an important legal document that creates a non-binding offer to purchase the business. The documentation has sensitive information about the business and both parties’ intention of the business transaction. You need to check the letter of intent if it has been spelled out the exact purpose of both parties like the proposed price, the terms of your purchase, as well as the conditions for the sale of the business. In addition, the letter should also state that either side could revise the terms and conditions or any of the two could quit the proposed deal for whatever reason until a binding contract is executed.
2. Confidentiality Agreement
A confidentiality agreement may oftentimes be required by the seller of the business. The purpose of the agreement is to assure the seller that you will not use any information about the business for any purpose other deciding to purchase.
3. Contracts and Leases
It is important that you check with current contracts and leases of the business that you intend to buy. This holds true especially for equipment leases or property leases when you need to work with the current landlord so that you can assume the existing lease. The role of the landlord should not be overlooked when buying an existing business because it is still his call to whether the lease can be retained under your ownership or not.
4. Financial Statements
Financial statements are important reports that show how a business is doing financially. You should pay close attention to the financial statements of the business for at least the past three to five years. You also need to double-check if the financial statements are accompanied with by an audit letter from a CPA firm. This will confirm that the statements are not a fraud.
5. Tax Returns
You will need to check the business’ tax returns from three to five years ago to help you decide if the business is profitable or if there is any outstanding tax liability. If the liabilities are overlooked, you will shoulder the penalties if they are discovered.
6. Important Documents
In addition to the above items, it is also important that you check the following documents for further investigation.
- Real and personal property documents
- Business bank accounts.
- Customer lists
- Sales records
- Supplier/purchaser list
- Advertisement materials
- Inventory receipts/lists
- Organization charts
- Payroll, benefits, and employee pension/profit-sharing info
- Employee roster
- Certification by federal, state or local agencies
- List of owners
Decision making is a big responsibility especially if your intention is to buy an existing business. The list provided in this tutorial will assist you with your decision-making process. However, it is still advisable that you hire a professional help to help you with reviewing the documents as well as evaluating the financial condition of the business.