Buying or Selling a Business

There are numerous aspects to buying or selling a business. But the following are general areas to be carefully evaluated during the business deal.

(a)                  Non-Disclosure Agreement: The non-disclosure agreement is important to protect the seller’s information regarding financials, intellectual property, business practices and other insider information. At first glance the agreement looks as only a benefit to the seller. But this also allows the buyer to offer to purchase a similar business, in the event of not closing the current deal, without having a prior offer exposed.

(b)                  What is Being Bought/Sold? This may seem like a simple answer: the business. But digging deeper the question expands - are you going to be selling the stock of your corporation/membership units of your LLC or the assets of the business? The way the business is sold determines risk allocation of potential liabilities.

(c)                  Valuation & Due Diligence: There should be enough general background information provided about the business that you can start to determine a fair purchase price. Don’t just look at the reports provided by the company; ask for tax returns and bank statements to support the financial reports. Financial information is not the only documents that need to be evaluated; the stability of the customer base, potential accounts receivable issues, and employee relations should not be overlooked. Be sure to get a true picture of how the business runs.

(d)                  Purchase Agreement: The documents that are signed will control sale and post-sale responsibilities. Make sure that the complete agreement made verbally is translated into the written documents. In general, anything not included in the written agreements disappears once the contracts are signed. The agreements must be done correctly to help avoid future problems and misunderstandings between the buyer and seller.

(e)                  Closing of the Deal: If only the assets of the business were exchanged from seller to buyer each party has a few more responsibilities. Prior to the closing of the deal the buyer should form their own LLC or corporation. Resulting in the entity being the purchaser and not the buyer as an individual. After the close of the deal the seller needs to consider whether it is time to shut down their LLC or corporation, report final tax returns, etc. thus the seller can move on.

If this is the first business you are purchasing in the particular industry be informed regarding the laws and regulations that control the business operations. The current owner may not be adhering to those regulations (double check environmental compliance) thereby subjecting the purchaser to liability after the deal closes. What is the most stressful part of buying or selling your business? What do you wish you did or knew before a deal closed?

Posted by Jess Bailey at 5/7/2010 2:06 PM
Categories: Risk Management, Contracts, Investing, New Business Owners
Tags: Risk Management Contracts Entrepreneur Investing New Business Owners
 

What did you think of this article?




Trackbacks
Trackback specific URL for this post
  • No trackbacks exist for this post.
Comments
Display comments as (Linear | Threaded)

Leave a comment

 Enter the above security code (required)

 Name

 Email (will not be published)

 Website

Your comment is 0 characters limited to 3000 characters.