Buying a Business: Key Considerations for Purchasers

In the process of becoming a business owner, you can either build one from scratch or buy an existing business venture. Although both processes have advantages and disadvantages, in this blog post, our focus shall center on buying a business. We shall look at how you can buy an existing business, the advantages of buying a business, and most importantly, some key considerations for prospective purchasers.

So, let’s get on with it!

 

How to Buy an Existing Business

People buy an existing business for many reasons. For instance, an entrepreneur may choose to acquire an up-and-coming competitor to monopolize the market. An entrepreneur may also acquire an existing business venture to expand their reach or build their investment portfolio. If you are trying to acquire an existing one and don't know how to go about it, this section is for you.

 

Step 1: Find a business to purchase

The first step towards purchasing a business is to find one worth buying. The simple truth is that there are plenty of businesses out there that are up for sale. However, not every one of these businesses is worth the investment – either they are in debt already, or they have lots of legal issues facing them. Therefore, in selecting a business to buy, you have to conduct due diligence and pick the one that is primed for profitability and isn't hiding any skeletons.

 

Step 2: Figure out the value of the business

After you have identified the business you want to purchase, the next step is to figure out what the business is worth. In the process of trying to determine the value of a business, it is always advisable that you hire a professional to help you so that you don’t overpay.

 

Step 3: Negotiate a purchase price

After you have determined the value of the business, and the owner is willing to sell, the next step would be to negotiate the price. You’ll do this by making a verbal or written offer which the owner of the business will either accept or reject. If the owner somehow rejects the offer, you would have to renegotiate the term of the deal.

 

Step 4: Submit a Letter of Intent (LOI) and complete due diligence

After an agreement has been reached with the owner, the last two things to do is to first get a letter of intent (LOI) signed. A letter of intent (LOI) is a letter that outlines all the details of the deal. This will typically include the initial offers and the final purchase price. A letter of intent (LOI) will also state your intent to buy the business. The second, and final thing would be to review all the business documents before finally closing the deal.

 

Key Considerations for Prospective Purchasers

The idea of buying an already existing business is very enticing because of the numerous advantages it has. For a start, buying a business venture helps to eliminate the problems one would normally face while building a business. Another advantage of buying an existing business is that such a business often comes with a customer base and revenue stream.

However, as enticing all these sounds, buying an existing business is not as straightforward as you would imagine simply because of the complexity of the deal. Therefore, in this section, we will expose you to a few things you must consider before you purchase an existing business. Understanding them will not only help you navigate the entire process with relative peace, but it will also ensure that you don’t get scammed.

 

●      Conduct Proper due diligence

As it is in other business transactions, you can also get scammed while buying an existing business venture. But you can safeguard yourself and your investments provided that you don’t rush into any deal. Proper due diligence will involve you reviewing all the vital documents of the business you are about to buy. You will also need to check the seller’s financial statements, legal status, intellectual property issues, and other potential liabilities. If, after reviewing the entire company, you notice that the business is not worth the risk, then it might be best for you if you walk away from the deal.

 

●      Operational Assessment

An operational assessment is essential to determine the efficiency and effectiveness of the target company’s operations. This involves evaluating the business’s key processes, systems, and infrastructure. Considerations include the quality of products or services, supply chain management, human resources, technology systems, and scalability. Assessing the business’s operational strengths and weaknesses helps identify areas for improvement and potential risks. It also provides insight into how the buyer can add value to the business post-acquisition by implementing operational enhancements or cost-saving measures.

 

●      Determining Deal Structure

In the process of purchasing a business, you must consider the structure of the deal to get the one that best favors you. The deal structure refers to how the purchase will be financed and structured, such as an asset or stock purchase. Each structure has implications regarding tax obligations, liabilities assumed, and legal ramifications. At this point, we recommend working with a legal and financial advisor to assess the most appropriate deal structure based on your objectives, risk tolerance, and financial situation.

 

●      The Purchase Agreement

Another important thing to take note of is the issue regarding the purchase agreement.  Simply put, a purchase agreement is a legally binding document that outlines the terms and conditions of the acquisition. So, as you are buying an existing business, It's essential to carefully review and negotiate the purchase agreement to protect your interests and mitigate potential risks.

 

Conclusion

When buying a business, it is crucial to take into account several key considerations that can greatly influence the success and long-term sustainability of your investment. Thoroughly assessing aspects such as the financial health of the business, prevailing industry trends, legal compliance, and potential liabilities will enable you to make a well-informed decision. Navigating the intricacies of the purchasing process demands the expertise and guidance of seasoned professionals.

Don't risk your investment's future by going it alone. Consult Stevens and Company Law Corporation, a renowned firm providing top-tier legal services, for proficient advice and assistance throughout the acquisition journey. Contact us at 1-250-248-8220 today to protect your investment and confidently embark on your new venture as a business owner.