Maybe you have the opportunity to buy a business as an investment. Or you’re tired of working for someone else and want to be your own boss. Perhaps you’ve always wanted to take over a franchise? There are many good reasons to buy a business.
But you don’t want to go into buying a business blindly. There are a few things you’ll want to know about before purchasing a business for sale, in order to protect your investment. Here are some helpful tips to consider before you begin the process of buying a business:
1. Find a Business Lawyer and an Accountant
The first thing you’ll want to do is find a professional business lawyer and accountant for the paperwork. No matter how small the business is, expect a lot of paperwork. You’ll want to make sure you have everything in order. There’s going to be a lot of legal jargon, so it’s important that you have a lawyer to answer any questions you may have. An accountant can also help with the books so that you know exactly what the business owes and how much it brings in.
2. Make Sure That You’re Buying Assets and Not the Business
If you’re buying a business that’s a corporation or LLC, don’t buy the stock. Instead, buy the assets and then form a separate company to act as the buyer. This will get you better tax benefits and can save you if that owner is getting sued or owes money. This way, you won’t assume any of those liabilities when purchasing the assets. Remember that intangible things are assets too, like the company URL, secret recipe, employee training program, and registered trademarks.
3. Ask About Payroll and Sales Taxes
You’ll want to make sure that the seller is up to date on their employment tax payments. Ask what payroll service they use and double check with them. Ask the state tax authority to provide a clearance letter that states the business is current in their sales taxes, too.
4. Negotiate a Letter of Intent
This is a short agreement between the seller and the buyer that spells out all the terms and conditions of sale for the business. It’s worth your time hammering out all the details the best you can in the beginning before lawyers get involved, so they have somewhere to start.
5. Get to Know the Employees
When buying a business, get to know key employees before you purchase, to see if they’ll stick around once the sale goes through. The skills and knowledge the current employees have is priceless. You’ll want key employees to stay, so see if you can put a provision in the contract that states certain employees will stay onboard or you’ll walk from the sale. Negotiate new employment terms with the employees if you must.
6. Use a Reputable Escrow Service
Escrow is how you ensure the sale is completed as promised, and everyone fulfills their obligations. An escrow service like Bay Area Escrow will ensures the terms of the sale are met before the sale is finalized. This means the buyer can’t under pay, and the seller can’t under deliver on promises either. The amount of money and trouble this can save you is enormous.