Starting a business from square one is not the only way to become a business owner. For many people, buying a business that already exists is the preferable option. For the reason that someone else has already set procedures, systems, a customer base, employees and a reputation in place hence, an established entity. Buying an existing business comes can be risky. Before a person purchases a business, she should conduct due diligence on the business to help try to prevent any problems from arising in the future. The due diligence stage is a chance for the buyer to identify red flags. For instance, the Buyer may want to review tax statements and QuickBooks. Did the seller buy or lease the building? The Buyer may want to hire an inspector/ The Buyer may want to obtain the inventory details and historical costs/profit. Although due diligence is a period of preventative measures, it is also an opportunity to learn about the structure of the business and its culture. Chick-Fil-A is a great example of a company that has unique work culture that drives the organization to success. A buyer may want to make sure the business not only looks good on paper but also understand the business culture. Buying a business with a sick company culture can end disastrous. However, as a business owner, acknowledging that the culture needs to be improved is where you can see a potential business thrive in the future.
We encourage you to connect with an attorney and develop a checklist that may contain some of the following:
- The Company’s Bylaws and all amendments
- The Company’s minute book, including all minutes and resolutions of shareholders and directors, executive committees, and other governing groups.
- The Company’s organizational chart
- The Company’s credit report, if available.
- Any projections, capital budgets, and strategic plans.
- Analyst reports, if available
- A schedule of all indebtedness and contingent liabilities
- A schedule and copies of all consulting agreements, agreements regarding inventions, and licenses or assignments of intellectual property to or from the Company.
- Any patent clearance documents
- A description of the worker’s compensation claim history
- A description of unemployment insurance claims history
- Employment tax filings for three years
- Excise tax filings for three years
- All loan agreements, bank financing arrangements, line of credit, or promissory notes to which the Company is a party.
- All security agreements, mortgages, indentures, collateral pledges, and similar agreements.
- All guarantees to which the Company is a party
Buying a business can be a long and stressful process. We offer services that can take weights off your shoulder. If you need assistance from an experienced business lawyer, we welcome you to give us a call at 713-572-4900.