In the business world, the best way to go about securing your business is to have a checklist of what you need to do. This is especially when it comes to buying an existing business. You have to ensure that no stone has been left unturned. With that in mind, do not get into any business if you do not have answers to the following questions.
1. Are you buying the company or the assets?
You should be buying the latter as opposed to the business. You should at no point get into a deal where you will end up buying the entire business, especially if it is a limited liability company. The seller should offer you the assets for purchase. That way you will not have to take responsibility for the liabilities of the seller. However, if the business goodwill is high enough, you may want to consider purchasing the business’s branding as well, even if you start your own company to buy it.
2. Payroll and sale taxes
You need to be highly aware of any taxes that are owed or need to be paid, otherwise, the authorities will come after you shortly after you buy the business. The best way to go about this is by requesting a clearance letter from the tax authority to affirm whether the seller is up to date with tax payments. It may take you some time to get comprehensive feedback on this, but it will be worth the wait. This is especially important if you are buying a business in a local area. For example, if you are buying a business for sale in Nevada, make sure that you look into the taxes that are owed to the state of Nevada as well as federal and local taxes.
3. Who will be dealing with the accounts receivables?
People are generally not very good at paying debts. Because of this, you need to make sure that at the close of the deal, that any customers do not owe the previous business owner anything. If that is the case, there are two ways you can go about this. You can choose to either delegate the collection of the debt to the seller or, you can buy the accounts receivables. The best pick would be to buy the account receivables as you will benefit from having a higher bargaining power if the customer wants to make additional purchases from you.
4. Who will take on the seller’s lease?
If the business premises are on a leased property, then it is essential for you to know how much time of the lease the business is left with and if the owner of the property will allow you to pick up from where the seller left off. Such information will help you make informed strategies concerning the location of the business. If little of the lease time is left, say about two years, you might consider negotiating a new lease term under more favorable terms.
5. Do any prepaid expenses exist?
You need to know if there is anything that the previous owner may need to get reimbursed for. Most prepaid expenses are not usually covered in the purchase agreement. However, the seller may bring them up near the close of the deal. Surprises may not be the best at this point. It is best if you get to know what you will need to be reimbursed for beforehand.
6. Letter of intent
This is also known as the term sheet. It is a short document that spells out the terms and conditions about the sale. It includes the prices, how the payments will be made and when they should be made. It’s important to have this all documented before you sign any contract to buy a business.
7. Will the seller stay for a while?
You will need the seller to stick around a little longer to orient you to the business. There is a lot to learn: which you will not be able to cover in a single day or a week. You should breathe a sigh of relief if the seller is willing to teach you a thing or two before he lets you take charge on your own. If this is the case, you know the seller is serious about selling their business and keeping it successful, as opposed to selling you a failing business.
If things are looking good in the checklist, then you can rest assured that you are taking on a good venture. It is now time to plan to be a boss!