Purchase Research

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Purchase Research

Once you've found a business that you would like to buy, it's important to conduct a hard, objective investigation. Look into every aspect of the business, verifying whether the owner's stated reasons for selling are legitimate; double check every detail for accuracy.

Professional Help

A qualified attorney should be enlisted to help review the legal and organizational documents of the business you are planning to purchase. An accountant can help do a proper evaluation of the financial condition of the business. To find an attorney in your area, use the American Bar Association's legal directory.

Letter of Intent

A letter of intent usually creates a non-binding offer to purchase the business and is usually needed in order for the seller to provide sensitive information about the business. It should spell out the proposed price, terms, and conditions for the sale of the business. The letter should also state that either side may revise or quit for any reason.

Confidentiality Agreement

Often required by the seller, a confidentiality agreement indicates that you won't use the information about the seller's business for any purpose other than making the decision to buy.

Contracts and Leases

It's important to discover all the obligations that the business is subject to. Also be aware that you may have to work with the current landlord to assume any existing lease on the business premises or negotiate a new lease. If you acquire an existing lease from another lessee, you may have to pay the previous lessee for the privilege. The cost of acquiring your lease may be amortized over the remaining term of the lease.

Financial Statements

Examine the financial statements from the business for at least the past three to five years. Also make sure that the statements are accompanied by an audit letter from a reputable CPA firm. Don't accept a simple financial review by the business itself.

Tax Returns

Review the business' tax returns from the past three to five years. This will help you determine the profitability of the business as well as whether any tax liability is outstanding.

Important Documents

Numerous documents should be checked during an investigation. They include:

* real and personal property documents
* bank accounts
* customer lists
* sales records
* supplier/purchaser list
* contracts
* advertisement materials
* inventory receipts/lists
* organization charts
* payroll, benefits, and employee pension/profit sharing info
* list of employees
* certification by federal, state or local
* list of owners

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About the Author: Start Your Business

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Starting a business requires you to complete a number of steps and make some key decisions. Though part of your overall plan, you’ll need to select a location, decide on a business structure, and obtain the necessary licenses and permits. In addition, determining which financing options will meet your short-term needs and long-term goals is crucial. Within this section, we’ll provide information on these topics along with guidance on buying an existing business, copyright and trademark issues, and getting support from an outside expert.
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