Buying a Business: A Thorough Investigation Can Save Legal Headaches
Category : Business Management
Buying a business can be a cost-effective way to launch a new venture or expand an existing one. However, prior to signing on the dotted line, it is imperative to conduct a thorough, objective investigation.
After you have identified a potential business acquisition, you should gather as much information as possible about both the potential risks and benefits. Below are several key areas to consider:
- Financial documents: Key financials that you should obtain and review with an experienced accountant include a current balance sheet, profit and loss statements, audited financial statements, and accounts payable and receivable. To verify any outstanding debts, you should also review any existing tax liens and UCC-1 forms, which are publicly available.
- Business assets: To get a complete picture of the company’s worth, you should inventory and appraise all of the business’s tangible and intangible assets. This includes physical assets, as well as intangible assets like copyrights, trademarks, patents, licenses, and good will.
- Tax liability: Review of the company’s tax returns reveals an array of valuable information, ranging from the profitability of the business to its potential tax liability.
- Employees: If you plan to retain key staff members after the sale, you should review all relevant personnel files to determine any ongoing obligations and liabilities. Issues to look out for include employment agreements, ongoing grievance investigations, and government audits.
- Licenses and permits: You should verify that the company currently holds the proper permits and licenses and determine the process for transferring them after the sale.
- Lease agreements: If the business leases commercial space, you should determine whether the lease addresses the sale of the business or whether you will need to negotiate a new lease with the landlord. The same applies to leases of office equipment, company vehicles, etc.
- Property concerns: If you are purchasing land in conjunction with the business sale, it is advisable to conduct due diligence regarding any potential contamination or other environmental concerns. You should also verify that the type of business you intend to operate satisfies any applicable zoning requirements.
Because some issues may not be readily ascertainable, it is always advisable to hold back payment of a portion of the purchase price. Spreading out the payments over a period of months provides financial assurance should you later discover that the former owner failed to disclose significant liabilities.
How We Can Help
Our business attorneys can help you evaluate both the risks and benefits of a potential business opportunity and help ensure that the transaction proceeds smoothly. Contact us today to schedule an initial consultation.