Orlando Business Attorney: Buying a Business
Starting a new business can be challenging. In fact, according to the Small Business Administration, over 50 percent of all new business startups in America ultimately fail due to lack of working capital, unproven concepts, and/or poor management.
That is why some consider it to be safer and more profitable to buy an existing business rather than to start a new business from scratch. In fact, the potential advantages in acquiring an existing business are many:
- The business’s future potential can be measured based upon actual experience and real numbers, rather than on financial projections (which are often overly optimistic).
- An existing business is already generating income, thereby reducing the need for extensive start-up capital.
- An existing business already has trained and knowledgeable employees, as well as current customers and vendors.
- It is easier to obtain or transfer existing licenses and permits from a business that has them in place, than to start the process from square one.
- Banks and other lenders may be more likely to loan money to purchase a going concern with a strong track record, as opposed to capitalizing a startup venture.
- Some businesses will help finance and train a new owner in order to keep the operation from stagnating or losing customers during the transition.
Buying a Business – The Team
If you are considering buying a business and assembling an experienced and knowledgeable team to help and advise you, your team may include a business broker, an accountant, and an attorney.
Your broker – who should be a member in good standing of the Business Brokers of Florida (BBF), the Florida Business Brokers Association (FBBA) or the International Business Brokers Association (IBBA) – will help you to locate and acquire the right company at the right price; your accountant will lead you through the due diligence process and advise you on things like taxes and record keeping; and your business attorney will help you with the organizational and legal documentation.
Think of the time you bought your house: you found your real estate agent through the recommendations of friends and family and then you thoroughly vetted him or her to make sure that this person knew the business, the market in which you hoped to buy, and the buying process, itself. Of course, your agent also made sure to quiz you on all the important topics: where you wanted to live, what kind of house you were looking for, how much you could afford, what your financing options were, etc., etc.
In much the same way, you are going to replicate the process with your business broker. You will make sure that he or she is competent, trustworthy and professional. In return, your broker will want to know why you want to buy a business, what kind of business you are looking for, where you hope it is located, what your experience is in the field in which you are searching, what you can afford to spend, what financing options you have in mind, etc., etc., etc.
Buying a Business – The Search
Based on your qualifications, your desires, and your ability to finance a sale, your broker will begin providing you with summaries and financial information from businesses for sale that meet your criteria. (For information about selling a business click here.) You will have to sign a Confidentiality Agreement, promising not disclose any proprietary information. Then you will be put in touch with qualified sellers so that you can tour their facilities and assess their business’s strengths and weaknesses.
Remember that in most cases, the process of buying an existing business needs to be kept confidential from current employees, customers, suppliers, landlords and lenders. Therefore, it is not uncommon that you will need to tour a prospective business after working hours so that that confidentiality remains intact. Premature disclosure of a sale, or even the notion that a business is looking for a new owner, can have a negative impact on its existing operations.
Buying a Business – Due Diligence
Once you have decided upon a business to buy, have made an offer that is provisionally accepted, and have a purchase agreement, you will begin the process of due diligence to make sure that the business you are planning to buy is as financially sound as the seller has represented. This is where your accountant and attorney can be very helpful because you are going to have to review an extensive amount of financial information and many different documents. The bottom is line is that before you buy an existing business you need to determine whether or not you will ultimately make any money from it.
If the business is a corporation you will need to see its articles of incorporation and all of its past reports. For any business you will need to examine, at the very least:
- All of its accounts and financial statements going back at least several years
- Its auditors’ and credit reports
- A schedule of any debts, liabilities, inventory, leased equipment, capital sales and purchases
- An analysis of its expenses and accounting methods
- Copies of leases, deeds, mortgages, titles, and insurance policies
- An accounting of any owned intellectual property, patents, trademarks, and/or copyrights
- A list of all employees including all salaries, benefits, retirement plans, insurances, workers compensation and unemployment claims, as well as a history of any labor disputes or pending legal actions
- Copies of all licenses, permits and governmental correspondence
- All tax records
- All current contracts, marketing and sales agreements, and purchasing policies
- A summary of all existing products or services
- A schedule of the company’s largest customers
- The company’s current advertising programs, marketing budgets, and marketing materials
- The company’s professional associations including law and accounting firms and any other similar entities engaged by the company
- All news articles and publicity materials relating to the company
In addition, Florida law places the burden upon a buyer to make certain that the seller has paid all of the business’s sales taxes.
Other items you may want to consider include:
- Whether or not you will be able to obtain some amount of financing from the seller
- Having a non-competition clause in place preventing the seller from competing with the business after the sale
- Whether the seller will agree to train the new buyer on how to run the business effectively
- Having the right to terminate the purchase agreement for any reason during the due diligence period with a fully refundable deposit that is kept in escrow pending closing
Consulting an Orlando Business Transaction Lawyer for Buying a Business
Buying a business carries complexities. It is not something to be done quickly or without the utmost attention to detail. If you are considering or in the process of buying a business in the Orlando area, contact our office for a consultation.