Steps In Making A Good Investment Out Of Your Business

Are you thinking of buying a business?

Narrowing it down, only two things may happen once you are offered with a business for sale:

1. open up a wonderful opportunity for you

2. be a disaster that's just waiting to occur

Purchasing a business is understandably a difficult process since it brings about a whole lot of important, life-changing matters for the buyer. It is almost similar to getting married. It means commitment and dedication. It entails financial risks. It involves myriad of little but essential details. It means legal responsibility.

While others may consider the careful process of buying a business, "due diligence", it could well rather be "common sense" to know what you would be expecting out of the whole venture.

Here are the things you must be prepared to go to great lengths to do:

• Signing a "confidentiality agreement"- this is an assurance for the owner of business that you will be using the information about the enterprise for the sole purpose of checking it out.

• Learning matters connected with business finances – you need to learn everything you could about the business' financial condition. Look into the following documents:

- latest balance sheet

- statement of profits and losses for at least the past 5 years it was in operation

- sales, unemployment, and income tax returns of the company for the past 5 years

- duly audited company financial statement

- accounts on payables and receivables of the company

- others

Aside from these documents, make sure that you also get hold of the lists of the company's debts and significant information connected with it like creditors' security interest or lien.

In this aspect, you can have an experienced business lawyer to double check other important information that may prove to be detrimental to your interests.

• Inspecting physical assets of the company – if your purchase would include several physical assets like equipment and machinery check out the working condition of these. You may need the help of experts in the certain machineries and equipment to check out its conditions.

For physical assets that are being leased, investigate the lease terms and ensure that you are given the right to take over.

Other physical assets may involve inventory and you have to find out if it is updated and marketable. You do not have to waste good money by purchasing outdated goods.

• Reading the terms of lease – if the business you are going to buy occupies a leased space, secure a copy of the lease agreement and have it be reviewed thoroughly by your business lawyer.

Make sure that your taking over the business would not affect the lease conditions by requesting the proprietor's consent. You may also wish to negotiate for a longer-term lease with lower rent.

• Inspecting the company's legal status – if an LLC or corporation owns it, then you may have two choices in the matter:

1. Buy the assets of the business – this may be a better option as your lawyer may point out.

2. Buy the business entity that owns the company's assets – if you opt for this then you have to go through the pertinent documents that formed the business entity and other related documents like bylaws, operating agreements and resolutions.

You also need to confirm if the business has a good reputation with the state that governs it, and its owner possess legal authority to put it up for sale. Ask its owner directly if the business has pending lawsuits or other governmental proceedings or had been threatened with such.

• Getting owners' assurance or guarantee – request that the owner provide you with a personal guarantee that the details about the business you have gathered are accurate and complete. This can be included in the purchase agreement you shall both sign, under the "Representations and Warranties" heading.

• Holding back purchase price – you need not pay the complete purchase price. Arrange an installment method of payment.