Business Law Blog

Checklist Before Buying A Business

Posted by Amanda Butler Schley | Jun 09, 2024 | 0 Comments

Are you considering buying a business? This can be a strategic move that can help you bypass the challenges of starting from scratch. Buying an established business can offer a head start by skipping the initial setup phases, such as developing products and services, or attracting customers. Yet, this route has its complexities and pitfalls that require careful navigation. The process involves more than just agreeing on a price with the seller. If you are committed to buying a business, thorough preparation and due diligence are critical to a successful transition. At Business Law Group, one of our experienced Louisiana business attorneys can help you understand your legal and financial rights regarding purchasing a business. Call (504) 446-6506 to schedule a consultation and learn more about your options. 

Figure Out What Type of Business You Want To Buy

When buying a business, individuals will want first to determine the type of business that aligns with their goals and expertise. Understanding what kind of business they want is the first step toward a successful acquisition. Consider these steps to figure out the type of business you might want to buy:

  • Evaluate Your Interests and Skills: Start by assessing your interests, skills, and experience. Consider industries or sectors where you have expertise or a passion. This will help narrow a search to businesses you know about and enjoy working with. 

  • Market Research: Conduct thorough market research to identify thriving industries with growth potential. Analyze market trends, customer demands, and the competitive landscape to determine which sectors are attractive for investment.

  • Financial Considerations: Individuals should evaluate their financial capacity and consider businesses that fit their budget. You should also determine how much capital you are willing to invest and explore businesses with a solid financial track record or growth potential that aligns with your financial goals.

  • Business Size and Scope: Determine the size and scope of the business you want to buy. Consider factors such as the number of employees, annual revenue, location, and market reach. Decide whether you are interested in a small local business, a franchise, or a larger corporation.

  • Industry Experience: Reflect on your industry experience and expertise. Assess whether you have the necessary skills and knowledge to manage a business in a specific industry. Consider enterprises where you can leverage their existing experience or are willing to acquire new skills.

  • Long-Term Goals: Define your long-term goals and objectives for acquiring a business. Consider whether they are looking for a short-term investment opportunity, a company for steady income, or a venture for long-term growth and expansion.

By carefully considering these factors, individuals can identify the type of business that best suits their requirements, interests, and aspirations. These initial steps are crucial in the process of buying a company as it sets the foundation for a successful acquisition and a rewarding entrepreneurial journey.

Where To Find Small Businesses To Buy

When considering buying a business, exploring various avenues to find the right opportunity is crucial for a successful acquisition. While there are many ways to find a business to purchase, there are five that are most commonly used. 

Deal Directly with the Business Owner

Reach out directly to small business owners looking to sell their businesses. Individuals can explore potential opportunities and get information directly from the source by approaching them and discussing the possibility of purchasing their business.

Hire a Business Broker

Business brokers specialize in connecting buyers with small businesses for sale. They possess industry knowledge, understand company values, and can guide buyers through the process. Utilizing a business broker's expertise can help buyers identify suitable businesses and navigate the acquisition process smoothly.

Some issues with using business brokers may make other options more appealing. These issues include high fees, a lack of control over the purchase, conflicts of interest, and misrepresenting the business's value. 

Online Platforms

Utilize online business marketplace platforms to browse listings of small businesses for sale. These websites provide a centralized platform for sellers to showcase their businesses, enabling potential buyers to explore various options and find a company that aligns with their preferences.

Industry Networks and Associations

Individuals who already know what kind of business they want to buy can engage with industry networks and associations relevant to the business they are interested in. Networking within these groups can lead to potential opportunities to purchase small businesses and provide valuable insights and connections within specific industries.

Business Expos and Events

Attend business expos, conferences, and events where small business owners may showcase their businesses for sale. These gatherings offer a platform to interact with sellers, learn more about different companies, and establish contacts that could lead to a successful acquisition.

By leveraging these resources and strategies, individuals aspiring to buy a business can enhance their chances of finding the right small business to purchase, setting the stage for a successful entrepreneurial venture.

Understand Why an Existing Business Is Up for Sale

When considering buying a business, it is important to look into why an existing business is on the market. Understanding the motivations behind the sale can provide valuable insights into the business's current state and potential opportunities for growth. Understanding the reasons for the sale can also ensure that potential buyers know what they are agreeing to purchase, which can be important if the buyer only wants to invest a small amount or does not want to invest significant time or effort into reviving a business that may be struggling. 

Some reasons a business may be for sale include:

  • Owner Retirement: In many cases, businesses are put up for sale because the current owner is looking to retire. 

  • Financial Challenges: Some businesses may be for sale due to financial difficulties the current owner faces. 

  • New Opportunities: Owners may sell their businesses to pursue other ventures or take advantage of new opportunities. 

  • Industry Trends: Changes in market dynamics, technological advancements, or shifts in consumer preferences can also prompt business owners to sell their enterprises.

  • Health or Personal Reasons: Sometimes, personal factors like health issues or other unforeseen circumstances lead to the sale of a business.

Do Your Due Diligence

Conducting thorough due diligence ensures a successful acquisition when buying a business. Once a buyer has found a business they believe they want to purchase, it is time to thoroughly investigate the business and ensure everything is in order. Business Law Group helps business owners through this complex due diligence process. 

Letter of Intent

A Letter of Intent is nonbinding and outlines the proposed agreement with the proposed terms and price for the sale. This document begins a more profound analysis of the business's operations and financials. 

Business Licenses and Permits

Ensure the business holds all the necessary licenses and permits for its operation. This includes verifying compliance with Louisiana's state and local business licensing laws, especially in regulated industries like food services and childcare. The Louisiana Secretary of State offers the ability to create a checklist of all the possible licenses and permits a business may need so that you can compare the list to what the company has in place. 

Organizational Paperwork and Certificate of Good Standing

Review the business's organizational documents, such as articles of organization for an LLC or articles of incorporation for a corporation. Obtain a certificate of good standing from the Secretary of State to confirm the business's authorization to operate.

Contracts and Leases

Examine all existing contracts and leases, including commercial agreements, property leases, and vendor contracts, to understand the ongoing obligations associated with the business. Ensure that there are no anti-assignment clauses in the contracts that would require signing a new contract with the same party or finding a new party to fulfill the same needs.

Business Financials

Review the business's financial statements, tax returns, revenue details, and debt disclosures to assess its financial health and performance over the past few years. While some buyers enjoy the challenge of reviving a struggling business, not all do, so ensuring a thorough understanding of where the company is financially will avoid regret later. 

Organizational Chart

Obtain an organizational chart to understand the business's structure, hierarchy, and critical organizational personnel roles. While the buyer may make changes after the purchase, understanding the existing structure and roles will make those changes easier. 

Status of Inventory, Equipment, Furniture, and Building

Evaluate the condition and value of the business's inventory, equipment, furniture, and premises to ensure they align with the company's stated assets. If any of these things are older or outdated, consider the cost of repairs and replacements while determining whether the business fits the budget. 

Other Important Documents

To fully understand the business's situation, request additional relevant documents such as marketing materials, employee details, warranties, intellectual property details, and any pending litigation information. These help paint a picture of the company's overall health and financial situation and what the new owner might be able to expect. 

How To Put a Value on a Business

When considering buying a business, determining its value is crucial for making informed decisions. Here are key factors to assess the worth of the company:

  • Revenue and Profit Trends: Analyze the business's historical financial data to understand its revenue and profit trends over the years. Consistent growth or stable performance is a positive indicator of value.

  • Assets and Liabilities: Evaluate the business's assets (tangible and intangible) and liabilities. This includes physical assets like equipment and property and intellectual property rights. Ensure that any outstanding debts or legal obligations are accounted for.

  • Market and Industry Position: Conduct market research to assess the business's position within its industry. Evaluate its market share, competitive landscape, and growth potential. A strong market position can add substantial value.

  • Customer Base and Reputation: Consider the business's existing customer base and reputation. A loyal customer following and a positive brand image can significantly impact the company's value.

  • Operational Efficiency: Evaluate the efficiency of the business operations, including processes, systems, and workforce. Streamlined operations and a skilled workforce can enhance the overall value.

  • Growth Potential: Assess the potential for future growth and expansion. Factors like untapped markets, new product/service opportunities, and scalability can influence the value of the business.

  • Risk Assessment: Identify and assess any potential risks or challenges associated with the business. This includes legal issues, market risks, technological disruptions, or operational difficulties that may affect its value.

Secure Capital To Make the Purchase

Securing capital is a crucial step in the process of buying a business. Here are some practical ways to ensure you have the necessary funding:

Close the Deal and Buy the Business With the Appropriate Legal Documents

When buying a business, specific documents should be signed to ensure the validity of the sale. At closing, buyers should look for documents such as an asset/stock purchase agreement, closing statement, lease agreements, disclosure schedules, an officer certificate, and closing certificate (bill of sale). There may also be a consulting agreement if the buyer used a business broker or other intermediary for the sale. Escrow agreements may also be included if any amount of the sales price is to be held in escrow for any reason. 

Frequently Asked Questions

The following are frequently asked questions that relate to buying a business. 

Why Should I Consider Buying an Existing Business Instead of Starting a New One?

Buying an existing business provides immediate cash flow and a financial history. Compared to starting from scratch, this saves time and working capital.

How Can I Determine the Value of a Business I Am Interested in Acquiring?

Calculate the business's net worth by subtracting liabilities from assets. This approach offers a snapshot of its current value but may not consider future revenue or earnings.

Will I Be Responsible for the Debts of the Business I Acquire?

This will depend on the terms of the sale. In some cases, the seller will use some of the sale proceeds to pay off debts, while in others, the buyer may be willing to assume some or all of the debts in exchange for a lower selling price. If the business has any tax liabilities, the Louisiana Department of Revenue requires the buyer to withhold the amount of those liabilities from the purchase price. 

Do You Need a Business Attorney To Assist With Buying a Business?

While buying a business that already exists can save time and money, it is still an investment that should be carefully examined. From finding the right business, to ensuring that due diligence is performed, to closing the sale, an experienced business attorney can provide guidance that ensures your investment in an existing business is solid. At Business Law Group, our knowledgeable Louisiana business lawyers are ready to meet with you in a free consultation to go over your business needs and options. Call (504) 446-6506 to schedule your appointment. 

About the Author

Amanda Butler Schley

Ranked as a Top Rated Business and Commercial Attorney, I have more than a decade of experience representing boutique hotels, family-owned businesses, privately owned restaurants, breweries, artists, executives and entrepreneurs.


There are no comments for this post. Be the first and Add your Comment below.

Leave a Comment

Who We Are

Business Law Group is a boutique business services law firm in New Orleans, Louisiana. Our focus is on understanding the legal pitfalls of your business and industry, as well as the secrets to maximizing your legal leverage at every opportunity and in every negotiation. We work selectively with clients that aren't ready for the overhead expense of an in-house general counsel, but understand the advantages of having a trusted legal advisor on their team. Amanda Butler has been ranked as a Louisiana SuperLawyer, New Orleans Top Lawyer, Best Lawyers, and in Leaders of Law.