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Buying a business is exciting. However, it’s easy to get caught up in dreams and plans for the future and fail to really think through all the potential issues. Buying a business is also a complex process — one best navigated by an experienced business attorney who can guide you through the business buying process and ensure that your purchase is a success.
Things to Consider When Buying a Business
Whether you are buying your first business or your one hundred and first, each business purchase is a unique transaction with its own challenges and opportunities. There are dozens of questions you need to consider when buying a business. These can include:
- Why is the seller really selling this business?
- Does the seller really own what they say they own?
- Should I get a non-compete agreement with the seller?
- Are there any liens or debts I should know about?
- What can I do to protect myself from obligations and liabilities incurred by the seller?
- Can I withdraw from the deal if I find something has been misrepresented or withheld?
The Importance of Due Diligence when Buying a Business
What is due diligence?
Due diligence is the process of gathering and analyzing all the data available in order to determine the value of a business and any risk that comes with buying it. Due diligence is much more than collecting a few years of bank statements and tax returns. Due diligence also includes a thorough and exhaustive review of every asset, obligation, liability, right and relationship of the business being bought. Essentially, what you’re doing is turning the business upside down and reviewing everything directly or indirectly related to it, whether written or unwritten.
Who should do due diligence?
Due diligence should be performed by business attorneys with sufficient experience and acumen to carefully identify, evaluate, and assess potential problems that may arise in the company you want to buy. While our attorneys have lengthy forms that list subject matters to be considered, performing a due diligence review is by no means a “one size fits all” proposition. Different criteria will be important depending on the nature of the business, its structure, and the terms of the contract.
What can go wrong with DIY due diligence?
You may think you can do your own due diligence when buying a business and don’t need to pay for a business attorney to do it. However, unless you have years of experience running the type of business you are buying, are a forensic accounting expert and a business lawyer, you are going to miss something.
Our attorneys have seen buyers miss many crucial things when they choose to do due diligence themselves. Some examples include:
- A buyer who overlooked that the business was in the process of losing its largest customer. (The business did in fact lose that customer.)
- A buyer who overlook that the business’s largest supplier had announced a substantial price increase.
- A buyer who forgot to ask the seller for a non-compete agreement. Then the seller literally opened up shop across the street, competing against the buyer.
- A buyer who missed operational problems that led to reduced revenues. This ultimately doomed the business and the buyer lost the business back to the seller.
- A buyer who overlooked that there were liens on some of the business assets.
Why You Should Hire Calkins Law Firm When Buying a Business
Every business is unique and has different assets, liabilities, rights, and relationships. And because each business is unique, boiler-plate purchase agreements and contracts won’t work. They inevitably miss something or leave the buyer open to avoidable future problems. A business attorney with years of experience buying businesses and who has handled hundreds of buy/sell agreements will understand what matters to this particular business, where the risks are, and how to cover all the bases.
Calkins Law Firm is a boutique law firm which means we run an efficient and lean operation. Our clients enjoy one-to-one contact with their attorney which results in ease of communication (no run around) and transactional efficiency.
Over the past 30 years, our attorneys have developed a tested sense of what each business transaction calls for, what is warranted and cost justified, and what amounts to going overboard in connection with each transaction. Call our Cleveland, Chagrin Falls or New York offices today to learn more about how we can help.