If you are buying a business in Florida or any other state, you must do your due diligence and look out for red flags. You need to make sure you learn as much as you can about the business, from its current owner and operations to existing contracts, employee agreements, insurance policies, licenses, and commercial leases.
Understanding What You Are Buying
One of the first things you need to do is understand what the business you are buying is and what it is not, and how much of it you are actually buying. If you are buying the entire company, make sure that the required documentation is current and all applicable taxes have been properly paid. Whether you are buying the entire business or just some of the assets, you will need to make sure that key contracts and licenses are transferable from seller to buyer, or that you can easily obtain them on your own. It is also extremely important to understand that company names and intellectual property may not be for sale along with the business.
When buying a business, you need to negotiate the terms that will govern the purchase. This is why having an experienced Business Lawyer working with you and the seller to draft the business purchase contract is so crucial.
Doing Research before Buying a Business
Once you have found the business that you would like to buy, it is important to conduct a thorough, detail-oriented investigation. Your research should include some important documents and information about the business that you want to buy, such as:
Letter of Intent – This letter should include the proposed price, the terms of the business purchase, and the conditions for the sale of the business.
Confidentiality Agreement – This agreement indicates that you will not use the information of the business and/or the seller for any purpose other than making the decision on whether or not to actually buy the business.
Contracts and Commercial Leases – If you are buying a business that has a current commercial lease for its location, be aware that you will probably have to work with the landlord to assume any existing commercial lease on the business premises or a new lease may have to be negotiated.
Financial Statements – You must examine the financial statements of the business for at least the past three years. Additionally, you need to make sure that an audit letter from a reputable CPA firm is accompanying the statements. You should never accept a simple financial review done by the business itself.
Tax Returns – reviewing the business’s tax returns from the past three years will help you determine the profitability of the business and whether there are outstanding tax liabilities.
Important Documents – When buying a business, several documents need to be checked during your examination. Examples of these include property documents, sales records, customer lists, advertising documents, information about employees and managers, and any contracts entered into by the business.
When conducting this research, a qualified business attorney should be hired to help review the legal and organizational documents of the business you want to purchase. Also, an accountant can be of great help when it comes to conducting a thorough evaluation of the financial status of the business.
Sales Contract for Buying a Business
The sales contract is the key document to close the purchase of a business. This binding agreement defines everything that you will purchase, including business assets, intellectual property, customer lists, and goodwill. Having a lawyer by your side to help you draft the terms of the sale is extremely important. If, however, you do not have a lawyer at that stage, you should at least hire one to review the contract before you sign it.
Closing on a Business
The closing is the final step in the process of buying a business in Florida or any other state. However, just because it is the last stage it does not mean it will always be a straightforward process that can be done without legal assistance. You must have legal counsel during this final stage to review all documentation that is necessary for the transfer of the business from the old owner to the new owner.