Purchasing A Business – Learn 4 Practical Tips When Buying A Business


1.  The Uncertainties In Purchasing A Business

It is common for prospective buyers to discover that a business has specific risks associated with the purchase. For example, there may be threatened litigation or there may be a particular group of high-risk receivables. There are options available to the buyer to build in protection for these types of risk. Certain risky assets – likely high-risk receivables – can be pulled out of the deal and left for the seller to collect. Funds can also be withheld in escrow until contingencies have been cleared. Purchase agreements are written to include both specific and general contingency escrows. The funds don’t go to the seller until your interest is protected.

2. Contingent On What?

Before you agree to a deal, make sure that your concerns are addressed. If timing has not allowed you to completely investigate all of your concerns, then make closing contingent on getting what you need. Whether is a zoning approval or a commitment by the other party to complete a task, be certain that the contingency is spelled out to your satisfaction.

3. Buying Assets Vs. Buying A Corporation

More often than not, a seller will want to sell his corporation to avoid double taxation and take advantage of capital gains rates on the sale. The buyer, on the other hand, will prefer to purchase the assets of the business. The reason is that risks associated with the entity that are left behind in an asset purchase, and the tax basis for purposes of depreciation and amortization is more favorable when assets are purchased. For these reasons, most transactions involving the purchase of a small business are structured as asset purchases.

4.  Buying A Business Checklist – Due Diligence Checklists

Before purchasing an ongoing business, you have to know what you’re buying. Is the market for the product drying up? Have the taxes been paid? Are there open or threatened lawsuits? These are questions you must consider in looking for a business to purchase. And there are many others. Once you have identified a business to purchase, and perhaps reached a letter of intent, you will go through a process called “due diligence”. During this process you will have an opportunity to examine the business in depth. A prudent buyer will approach this task armed with a comprehensive checklist to cover each business discipline, including Legal, Financial, Marketing, Human Resources, etc. Most often, unless you have a large internal staff, you will also call on your outside attorney and accountant for assistance in completing the process.

Check Out Related Legal Topics:

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Alternative Dispute Resolution – Mediation Vs Arbitration

Legally Binding Contract – Written Contract Vs. Oral Contract

Buy Sell Agreement – 3 Benefits Why You Should Use One

Protecting Your Assets From Your Business Debts

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