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Buying an Existing Business? Here are Some Tips for Doing it Successfully

buying an existing business

Considering purchasing a small business?

It’s a big step to take in your entrepreneurial journey, but it’s one that could lead to a lucrative career for you. Many people aim to start a small business from the ground up, but there’s a lot of risk in that path.

However, when you work with an experienced business attorney to buy an existing business, this mitigates some of that risk.

The good news? There may be more opportunities in the next few years to do so.

The vast majority of small businesses are currently owned by Gen Xers and Baby Boomers. Since most Boomers will be looking to retire in the next five to 10 years, their businesses will continue to be up for grabs on the business-buying market.

Ready to get the ball rolling on buying an existing business? Reach out to a Wilmington business lawyer and ensure the process runs smoothly and legally.

Pros and Cons of Buying an Existing Business

The most significant benefit of buying an existing business is you don’t have to build the company from the ground up. You can avoid the costs, losses, and headaches of starting your own business from scratch and skip right to having an established product, existing customers, staff, and profit.

Some of the downfalls of purchasing an existing company are that there may already be processes and procedures in place that could be difficult to change—even if they’re not working. You may also be dealing with a poor existing company reputation or unknown issues hiding in the shadows, which wouldn’t be an issue with a brand-new business. Finally, there could be outstanding liabilities that come with the purchase of the business that you may or may not know about.

That’s why following careful, planned steps while purchasing an established business is essential.

What to Do Before Deciding to Buy an Existing Business

The first move you’re going to make when buying a company isn’t securing a business loan and signing the contract. Your first steps happen long before you complete the transaction and sign the paperwork.

Here are some initial steps you’ll take before buying an existing business to protect yourself and your future business assets.

Decide on a Business to Purchase

Probably the most exciting step in the process, this is far from the easiest. Deciding which company to purchase means examining your passions, abilities, experience, and budget.

Most people don’t jump into a business venture in an industry in which they have zero experience. That’s why it’s beneficial to look for businesses for sale in a niche that you know you’ll perform well in and make a short list of possible ones.

Research the Company and its Business Operations

Once you’ve decided on a few possibilities, it’s time to research each company’s business model.

Is the business strategy working? 

Are competitors outpacing this company? 

Does the business have a poor reputation? 

Are the company’s liabilities heavier than its assets? 

What’s the company’s existing cash flow like?

We know… that’s a long list of questions that need answers.

Some ways that may help you determine these answers include:

  • Asking the current owner why they’re selling
  • Talking to customers and reading business reviews
  • Chatting with existing employees and vendors about the business
  • Speaking with a business broker
  • Speaking with a business analyst

Dig into each company you’re considering and figure out if there are any red flags you should be concerned about.

Run a Credit Check on the Business Owner & Check Out the Business Reputation

Don’t underestimate the power of checking the current business owner’s credit history. Late or default payments, bankruptcy, or other negative points on their credit score could be a big red flag that the business is not in a profitable place. After all, if someone’s personal finances are in shambles, their business’s finances likely are too. In addition, check the Better Business Bureau’s website to see if the company you are interested in has a solid reputation. Checking other online sources, such as Google Reviews, is also a good way to check up on the reputation and health of the organization.

Enlist the Help of Professionals

When you’re ready to complete the transaction of buying a business, there’s a lot of financial and legal legwork to be done.

Some important financial and legal documents that will need to be reviewed, completed, and filed include the following:

  • Letter of intent
  • Business contracts
  • Business licenses
  • Seller financing agreement
  • UCC-1 Financing Statement
  • Lease agreement
  • Asset purchase agreement or Stock purchase agreement
  • Seller’s counsel letter and Buyer’s counsel letter
  • Confidentiality agreement
  • Non compete agreement
  • Tax documents
  • Corporate filing with the NC Secretary of State
  • Financial statements
  • Business acquisition loan

To ensure the language of each document is above the line and your transactions go off without a hitch, it’s best to enlist the help of a business accountant and an experienced business lawyer.

Need a Business Lawyer in Wilmington, NC?

Buying a company is no small feat, and there are a lot of hiccups that may arise during the process. You want your business purchase to be completed wisely, smoothly, and legally, so having a trusted business attorney at your disposal will be a tremendous asset.

At Johnson Legal, we’re dedicated to helping you achieve success in your business ventures. That may involve becoming a business owner for the first time, operating your business according to North Carolina law, or planning for eventually selling your business down the line.

Contact our legal team today to learn more about how a business lawyer can help in your venture.

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