So you want to purchase an existing small business, first of all, congratulations on attempting this great feat. Buying an existing business can be a better way to start a business if financial funds allow because not only is the business probably already making a profit, it has established goodwill in its name and most likely has one of the most difficult aspects of starting a new business down packed, which is a book of clients or customer base.
However, before you go in full throttle in purchasing an existing business, it is wise to do your due diligence in making sure that the business is not only right for you, but that the business has no obligations or liabilities encumbering it, that may fall on you upon purchase.
Step 1: Perform Comprehensive Independent Research
You want to research the existing businesses reputation comprehensively. A good starting point would be to search through several search engines including the better business bureau looking for reputation reviews through past customers and potential competitors. It is also advisable to speak with others who have similar businesses to understand some of the challenges and successes of owning this type of business.
Step 2: Get Credible Business Valuation
Credible business valuation requires an experienced and knowledgeable professional that can give an independent and well supported opinion on the value of the company. Because business valuation is complex and includes both elements of finance, accounting, legal, economics and management principles a certain level of care must be exercised, so it is important to find a qualified valuation expert that has some type of certification.
Step 3: Research All Existing Business Obligations and Liabilities
Once you have a good understanding of the business and what it will cost to purchase the business, you want to check for all obligations and liabilities the business may have before the purchase. Does the business have any judgments or liens against it? This is another area where you need an experienced and qualified professional such as an attorney who can assist you in determining what liabilities you may be inheriting by purchasing the business such as liens or judgments against the business.
Step 4: Negotiate A Sales Price and An Agreement
If you are satisfied with the results of your due diligence, then it is time to negotiate a sales price and a sales agreement. It is advisable at this point to hire legal counsel to help you make decisions such as business name retention or not, if the business property is leased, whether you will be taking over the lease via assignment or subletting or if you will be moving to a different location and whether you will be inheriting the employees. Other things to consider are whether you will be keeping the phone number and any or all vendors the business currently uses. Your attorney can also help you negotiate a reasonable non-compete clause for your business as it varies by state and business and if you have a non compete that exceeds what the courts would consider reasonably necessary to protect your legitimate business interests, they can deem the non-compete agreement invalid.
Taking these steps will ensure that you go into an existing small business ownership with eyes wide open and that your investment is a wise one.
Ayesha Chidolue is the Managing Attorney at The Chidolue Law Firm. We are a boutique law firm that acts as a trusted legal advisor to small business owners. Attorney Chidolue is licensed to practice law in the states of Florida and New York. At The Chidolue Law Firm, we can guide you through organizational design as well as purchasing an existing business. If you need legal assistance with your business, we will be happy to assist you. Please contact us at email@example.com or call us at 407-995-6567.