RULES OF BUYING A BUSINESS: RULE NO. 3: WRITE A CAREFUL OFFER

Once you have decided to move forward with buying a business you should write a careful offer. First, I recommend you consult a lawyer to assist you in writing the offer. The cost is often not as much as people might imagine and it could help you from making a major mistake. For example, do you want an asset or stock purchase? There is a big difference in the legal and tax consequences between the two types. Second, you will want to draft the offer with certain contingencies in mind. A nonexhaustive list of such contingencies may include:

1) Due diligence including, but not limited to, financial review, taxes (income, sales and employment), corporate structure review, inventory issues, asset lists, lawsuits, real estate or lease issues, contracts review, employment matters, etc.;

2) Financing;

3) Necessary approvals from governing or regulatory bodies;

4) Environmental issues (if applicable);

5) Obtaining agreements on non-competes for owners and key employees;

6) Representations and warranties;

7) Continuation of the normal operation of the business with no material changes;

8) Penalty provisions in case the owner sell or negotiates with another person after accepting the offer;

9) Other issues specifically related to the situation.

I also highly recommend contacting an accountant before making an offer. It is important to gain enough financial information up front in order to make a reasonable offer based upon your own financial situation. Keep in mind that if you have a loan or other debt you may need a significant cushion to make the payments and support yourself too. DO NOT BUY ON EMOTION – SEE RULE NO. 1. Unless you are a financial expert you should have the accountant review the financials in order to help you understand how much you can reasonably pay for the business.

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Rush Nigut is a shareholder with the Brick Gentry Law Firm in West Des Moines, Iowa. His practice includes both transactional and litigation matters including franchising and business law. Rush started his legal blog, Rush on Business, in 2006. He has been quoted…

Rush Nigut is a shareholder with the Brick Gentry Law Firm in West Des Moines, Iowa. His practice includes both transactional and litigation matters including franchising and business law. Rush started his legal blog, Rush on Business, in 2006. He has been quoted or referenced by hundreds of other blogs, websites, and publications. He also is the editor of the Brick Gentry Trial Team blog and can help you identify the most qualified lawyer at Brick Gentry to handle your case. Our lawyers have a breadth of trial experience in personal injury, employment discrimination, business litigation, IP law, and class action cases.