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4 things you should know when buying a business

| Feb 23, 2021 | Business Law

Building a business from scratch is a process that takes months, if not years. It also requires a much different skill-set than the successful management of an existing company.

If you find yourself wanting to run a business without needing to build it from the ground up, buying an existing company can be a quick way to take control of your own company. Buying an existing business and all of its assets is a massive expense.

While the process is faster, it also comes with its own unique set of risks. There are certain things you need to know before you commit to making such a major purchase.

You need to protect yourself from liability

When you purchase the company, you take on responsibility for its operations, its products/services and its failures. You could potentially buy a company that has already turned out defective products or defrauded clients.

Asking for the seller to indemnify you from their mistakes or wrongdoings as part of the purchase contract will protect you from someone passing you the responsibility for their misconduct.

Familiarize yourself with the industry

Some companies struggling right now operate in an area of business that will continue to grow in the future. Other companies that seem solvent are in a shrinking or dissolving market with decreasing demand.

Before you make an investment in a company, you need to have a sense of what experts predict for the business model’s long-term success. Looking at projections for your desired industry and competing industries can give you a more well-rounded view of the opportunities and risks.

You will need help taking control of the business

No matter how professional and experienced you are in management, if you haven’t run this exact type of business in the past, you will need help. In fact, even if you have operated in the same industry previously, having executives and managers stay on for transitional support is crucial to a smooth changeover.

The previous owners and executives will be able to help you develop relationships with staff and crucial industry contacts. They will also help you learn how to successfully manage daily operations.

Every company has its hidden liabilities

From overly-generous severance agreements in employment contracts to maintenance responsibilities for a leased property, every business has debts and liabilities. You may need to look carefully at everything from leases and vendor agreements to the financial records of the company to determine if the sale is a smart one and what price you should offer.

Going into business, whether by buying or starting a company, will involve some risk. Getting experienced legal advice about each step of the process can help you avoid the most dangerous risks involved.