Purchasing an Existing Business Lawyers
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What Are the Benefits of Buying an Existing Business?
Buying an already established business is appealing to many individuals because it is less expensive than attempting to start up a new business. Other benefits and advantages include:
- An established customer base
- Great location
- Easier to handle and manage from the beginning
- Comes with inventory and machinery
What Should I Do Before I Even Consider Purchasing an Existing Business?
Buyers should never purchase an existing business without doing their homework first. Understanding what you want and how much you can handle are things to consider before buying the existing business. As a potential buyer, you should ask the following questions:
- Does this business interest you in anyway?
- Do you have the right skills and experience for this business, or is it an unrealistic business venture?
- What condition is the business in?
- Why is the business being sold?
Questions You Need to Ask About the Existing Business
There are some other details that are essential to know about a business before making a definitive decision to buy it:
- Any potential litigation the business (under the old owner) may face or is currently facing
- What patents, copyrights, or trademarks the company holds
- Whether the business is compatible with local zoning ordinances
- How the business protects any trade secrets it may hold
- If the commercial leases and major contracts can be transferred to the new owner
- The business license and the tax registration need to be transferable
- Who holds title to the company assets
- How consistent the company has been in paying taxes, and whether there are any pending tax liabilities
- If the business is a franchise, what has to happen in order to get franchise approval
- If the business has committed any violations of environmental law
What to Do During Negotiations?
Once you start negotiating with the current owner there are still many things to consider. One of the most important is determining the value of the business. There are many methods, but the most common are:
- Capitalized earning approach
- Excess earning approach
- Tangible assets method (also known as balance sheet method)
- Cash flow method
- Value of specific intangible assets method
During this time, you and the current owner can specify the terms of the sale and include whatever you believe is important. It is common for sale agreements to include:
- Adjusted purchasing prices
- Security Agreements
- Patents, Trademarks, and Copyrights
- Business inventory (Bulk Sale Laws)
- Employment agreements (if the owner wants to remain, but as an employee)
- Franchise documents
- Bill of sale
- Covenants not to compete
Should I Consult with an Attorney When Purchasing a Business?
Yes. Purchasing a business can be a complex process with many legal formalities. This is especially true after you and the current owner have outlined the terms of the sale. A business attorney can help you draw up a written sales agreement and make sure your interests are represented in the agreement.
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Last Modified: 06-30-2015 11:41 AM PDT
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