There are several advantages to buying an existing business as opposed to starting your own. However, purchasing a business requires the consideration of many factors.  An attorney can guide you through the process and ensure that you make an informed decision.

Before purchasing a business, you must perform due diligence, which will provide you with access to the business inventory and equipment, financials, contracts, intellectual property and any outstanding legal matters. Carefully reviewing these details helps you determine the risks involved and provides you with a stronger position for negotiation.  Due diligence also makes sure you are fully aware of any and all existing and future legal obligations, outstanding judgments or tax liens.

Proper valuation of the business is critical. Using the information obtained during the due diligence process, the business should be evaluated based on its assets and liabilities, the economy, historical earnings, current cash flow, potential profit and future market growth.

Finally, knowing your options in terms of purchase price will allow you to make the best decision for your needs. There are multiple types of transactions. For example, an asset purchase transaction entails the purchase of a business’s assets without purchasing the selling entity itself. A stock purchase is the purchase of shares of a corporation, resulting in the ownership of the corporation holding the assets and operating the business. For more on purchase price payment options, please see Buying a Business: Purchase Price Payment Options.