To Buy or Not to Buy

Hmm, good question. Let's weigh the pros and cons:

"Uh, Maybe I Should Buy Fred's Company ..."

Among the many favorable aspects to buying an existing business is the drastic reduction in startup costs. In addition, cash flow may be immediate because of existing inventory and receivables. Other positive effects include existing goodwill and easier financing opportunities, assuming the business has a positive track record

"Wait, Why Pay Fred if I Could Start My Own Firm?"

Among the biggest downsides to buying a small business is the initial purchasing cost. As developing the business concept, customer base, brands, and other fundamental work has already been done, the costs of acquiring an existing business may be greater then starting a new business. Other possible disadvantages include hidden problems associated with the business and receivables that are valued at the time of purchase, but later turn out to be noncollectable

Closing Checklist

Okay, so you've decided to make Fred happy, take the plunge and buy his business. You've even signed a contract to buy it. But before you close on this monumental transaction, make sure that your business attorney available to review all of the "closing documents" necessary for the legal transfer of the business.

Among other aspects of this transaction, make sure you review carefully the following terms of the deal:

Adjust Purchase Price — This would take care of prorated items like rent, utilities, and inventory up to the time of closing
Review Documents Required to be Provided by the Seller — These would be a corporate resolution approving the sale, evidence that a corporation is in good standing, or any tax releases that may be been promised by the seller. Check with your local department of corporations or secretary of state
Signing Promissory Note — In some cases, the seller will carry back financing, so have an attorney review any Note documentation
Security Agreements — These documents may be necessary if you're going to finance your purchase. A Security Agreement lists the assets that will be used for security as a promise for payment of the loan
UCC Financing Statements — These documents are recorded with the Secretary of State in the state you have purchased your business. Again, these documents are necessary if you're going to finance your business
Lease — If you have agreed to assume an existing lease, you'll be required to execute the assumption. Make sure that you have the landlord's concurrence to assumption of the lease. You may have negotiated a new lease with the landlord instead of assuming the existing lease
Vehicles — If the purchase includes vehicles, you may have to execute the transfer documents for the vehicles. You can check with your local Department of Motor Vehicles to determine the correct procedure and necessary forms
Bill of Sale — The bill of sale will be proof of the sale of the business and will transfer the ownership of the other tangible business assets not specifically transferred on their own
Patents,Ttrademarks, and Copyrights — May need to execute the necessary forms if part of the transaction
Franchise — May have to execute franchise documents if the purchase of the business was a franchise
Closing or Settlement Sheet — The closing or settlement sheet will list all financial aspects of the transaction. Everything listed on the settlement should have been negotiated prior to the closing, so there should be no surprises
Covenant Not to Compete — it's a good idea to have the seller execute this agreement. This will help add to the success of your operation of the business without any interference from the previous owner
Consultation/Employment Agreement — If the seller has agreed to remain on for an amount of time, this documentation would be necessary
Complete Asset Acquisition Statement - For tax purposes, you will need to allocate various elements of the purchase to various types of assets involved in the sale using IRS Form 8594
Bulk Sale Laws — Make sure that all bulk sale laws have been complied with in the transfer of the business assets