Buyer Beware.  Are you looking to purchase a business?  Are you in the process of purchasing a business?  In this article I will address some key things to look out for that can protect you and save you thousdands of dollars.

Purchasing a business is very exciting.  You have been waiting to be your own boss and now the time has come.  You believe in your ability to grow a busnisss or turn around a medicore business.  You are right to believe in yourself and your abilities.  How you believe and what you say and the choices you make will determine you future.  Your situation today is a result of choices you have made along the way.  And now you are ready to mak a huge decission and you can make it with great wisdome.  Follow the insight in this article and you will have a much higher probability of being successful in your venture.    Many people purchase a business without covering themselves properly but you can take the biggest step in your life with assurance that you will not be one of the statistics that do not make it. 

Ok, so lets get started. 

1.  I can not stress this first point enough.  Get legal representation.  Higher a lawyer to represent you throughout the transaction.  There are many legal web sites where you can put together a contract and get legal advice.  However there is not substitute for legal representation.   It can cost anywhere between $500 and $5000 for a small business depending on the Nature of the business and local, state and federal requirments, but it is a must.  Please do not attempt to purchase a business without a lawyer.  It is tempting to save the legal fees, after all you have to pay for advertisment, utilities, governmental fees... but do not fall into this trap.  Do no skip this step.

2.  If you hire a lawyer and I suggest that you do, this step will be taken care of by him.  However you can make sure that he does it since now you know about bulk sales. Call Bulk Sales for your state.  This is very important if you are purchasing a business and operating the previous owners equipment out of the same location.  If there are any state taxes, leins... due then Bulk  Sales will identify them.  Then an escrow account can be established and the previous owner can cover those taxes due prior to sale.  The state can come after the new owner even if the previous owner has not paid their sales tax.  Therefore bulk sales is key.  Search the internet to learn more about bulk sales or contact you state.

Form the business properly.  Your accountant can help you with this also.  You do not want to be held liable for business debt.  You do not want your house to be in jepordy if something should go wrong.

3.  Why is the business for sale?  Do not take the next step until you answer this question objectivly.  Many sellers have said, "I am selling to move to a different state to take care of my sick dad."  This may be true but how does the business perform.  It is very hard to be objective without help from others.  First rule to being objective about the potential business is to hire an accountant to look over the books.  Are the books legitimate?  The sales tax paid should match their personal books.  If they say that they do not report all of their sales then you know already that the can and will lie to the state so therefore they will lie to you.  This raises a red flag. Is the business being sold because they can not make enough to cover stay afloat.  For example, if it is a restaurant, look and the cost of food.  Comparing last years numbers is ok but you have to incorperate in the rising cost of food and gas.  Your accountant will help you determine if the reason for the sale is because of the financials.

4.  Do a credit check on the previous owner.  If he does not allow you to then there could be come cause for suspicion.   If a business is doing so good then that should be reflected in the credit report.  This is not a huge step but it can not hurt to ask.


5.  Take your time in the Due Diligence period.  Due Dilligence is a time where you have access to their books, financial records...  Do not rush this time.  For many businesses, a whole month is reccomened.  During this month you should be in the place of business working along side of the owner, manager, technician.  Ask a lot of questions.  Do not be afraid.  They should answer everything you want to know.  Look for inconsitencies from what the sellers tell you and what the books day.   Speak with distribors and clients when possible.  Work the hours that the owner works.  If the owner is there from10:00 am until 11:00 pm then you work those same hours. 

6.  Make sure you have enough operating capital.  Calucate the money that you will need for several months.  Do not put yourself in a postion where your electric is going to be shut off or you can not pay your employees...  Also make sure that you calculate things like gas to and from the shop or utility deposits which can be $1000.00 or more.

7.  Objectively evaluate the business.  Many counties have free help for small businesses.  These organizations usually have men and women who are currently or previously were business owners.  This is a great resource for individuals starting a business.   They will help you objectivly evaluate the business.  Your accountant will give you an objective look at the financials.  There are also tools on the internet to evaluate a business.

8.  Do not rush into a purchase no matter how excited you are.  Take your time and enjoy the process.

Have fun and follow your inner man.

All information in this article is based on the authors opinion and does not constitute legal or financial advice.