Purchasing a business that is already established is often the best option for individuals wanting to be their own bosses. An established business usually has all the essential structures in place, may have a list of recurring customers, and has already done the work of establishing a brand. There are a number of legal steps to take to ensure a successful takeover of an established business.
Do Your Due Diligence
“Due diligence” is a process of research and evaluation that allows you to understand the assets, liabilities, and potential of a company you are considering for purchase. The process requires requesting and assessing documents from the company, as well as looking into public records regarding the company’s creditworthiness and legal compliance. This step can take some time and requires you to have a good line of communication with the owner or owners of the business.
Often times, when you are evaluating a business and going through the process of due diligence, there is the possibility that you miss something important. To minimize this from happening, consider meeting with the current owner and c-level employees (if possible) of that company on multiple occasions.
Determine the Right Structure for the Purchase Contract
Once you have found a business that suits your needs, you will have to design a contract that covers a variety of issues, such as whether you will be purchasing the business as a private entity or a company, the purchase price, the number of assets or shares of the business, and how payment will be structured. These items may require some negotiation with the seller of the business.
An attorney that offers business transaction law services can help you ensure that all these matters are properly addressed. Experienced attorneys can also provide recommendations to help support you in ways that you may have not considered otherwise. Once the contract is created and approved by you, they can usually help with the negotiation process as well.
Create the Appropriate Documents for the Sale
Generally, the sale of a business requires a wide variety of documents to complete the process. These may include a contract for the purchase and various documents providing a smooth transfer of assets, as well as finalizing payroll, tax, and insurance liabilities.
If the business has assets such as a website or social media, documentation related to how the transition will take place as well as the login information or agency transitions when applicable.
Outline the Transition
Some assets may need training sessions such as the use of proprietary software. When proprietary software or hardware is involved, it’s ideal to have an additional person involved in the trainings so you aren’t the only one responsible for understanding the process. Video and written documentation may also be part of this process.
For transitioning that needs training, it is ideal to to have what the outgoing owner will provide vs what will be provided by the team that is already in place. With that in mind, this process is typically more important when there isn’t a team in place already that knows the information and you are dependent on the person who you are taking over for.
In most cases, you will have a transition period where the person will be available after they have transitioned out of the company. However, these details need to be outlined in the contract so they are contractually bound to assist.
Acquiring a business can be a complex process, with many details you may not understand clearly. This is where your team of professionals can provide critical advice. Before you begin exploring businesses for sale, get to know an accountant that has experience in acquisitions and a representative of a financial institution that can help you get financing for your purchase. These individuals can answer questions you may have as you go through the steps of acquiring the right business.
Finding the right business for your needs and talents can be a lengthy process. Once you have found a suitable company, it’s best to take your time with the details, to ensure that the purchase goes smoothly. Once these steps are accomplished, you can begin to optimize the business for your own individual goals.