How To Buy An Existing Small Business
Brooklyn Business Lawyer Discusses How to Buy an Existing Small Business
Buying an existing small business can be a smart decision as it is often less risky than starting your own business and you can hit the ground running. It is a good idea to consult with an experienced business lawyer early in the process to make sure you get the best deal possible. The major issues to consider when purchasing a small business include minimizing taxes, identifying potential liability issues, and making sure the cash flow is sustainable.
Identify a Business Opportunity
The first step towards buying an existing small business is to search for a business opportunity. Narrow your search by focusing on businesses that fit your skillset and financial requirements. Take advantage of your network, including LinkedIn, Facebook, and alumni associations to locate businesses that are looking to sell. You might also choose to contact a business broker.
Conduct Due Diligence
Once you have identified your acquisition target, the next step is to conduct “due diligence.” Due diligence is the process of thoroughly investigating a business in order to determine what it’s worth before negotiating the terms of the purchase. A business lawyer can guide you through the process and help you identify any hidden liabilities you will assume once you become the business owner. Certain unexpected obligations might be triggered by the transfer of ownership, such as balloon payments, right of first refusals, contractual right of termination, etc. An experienced business lawyer will handle all of these details and establish your credibility with the acquisition target.
Some things to look into during the due diligence phase include:
- Corporate documents
(including the certificate of incorporation, articles of organization, and/or a Certificate of Good Standing from the Department of State).
(including contracts with distributors and suppliers, customer agreements, confidentiality agreements, non-compete covenants, real estate contracts, and insurance policies).
- Licenses and permits
- Lists of assets and liabilities
- Negative publicity
(a thorough online search can clue you into any potential problems with the business, such as negative customer reviews).
- Financial records
(prospective business owners may want to consult with an accountant or financial advisor to review tax returns, financial statements, and potential tax liens on the business).
Any problems uncovered during the due diligence phase can be addressed during negotiations.
Draft a Letter of Intent
The Letter of Intent (LOI) outlines the key terms of the deal before agreements are finalized. Some key things to include in the LOI are:
- The parties to the transaction
- How the transaction will be structured (will you be buying all the business’ assets and liabilities or only some?)
- Purchase price
- When payment is due
- Whether payment will be made in a lump sum or installments
- Confidentiality obligations
- What parts of the agreement are binding upon the parties
Prepare the Purchase Agreement and Close the Transaction
The purchase agreement memorializes the key terms of the deal. Once this document has been finalized, the parties and their attorneys will consummate the transaction during “closing,” where money and property are exchanged, and all outstanding documents are signed.
If you are considering buying an existing small business in New York, Regina Gordon Law Office can guide you through every stage of the process. We serve clients online throughout New York State, including Long Island, New York City (NYC), Brooklyn, Manhattan, Queens, Bronx and Staten Island. To discuss your goals, contact us at 347-770-7507 or submit an online inquiry today