Mistakes Made When Buying a Business
Buying a business instead of building one from the ground up offers many advantages. You get to acquire an existing customer base and trained employees. Business owners also turn to mergers and acquisitions to expand into market areas already controlled by established companies. Whether you are buying a business as an individual or already running a company and looking to make an acquisition, the process involves many layers of complexity. You will want guidance about business law in Indiana from an attorney familiar with the many pitfalls that can impact a business deal. As you explore the possibility of buying a business, watch out for these common mistakes.
Insufficient Due Diligence
You need to dig deeper than merely analyzing the financial records presented by the seller. Problems could quickly be lurking on the horizon for a business that currently appears profitable. Emerging competitors might be eroding a company’s market share, or its product is on the verge of becoming obsolete. Hidden liabilities, like an undisclosed loan or a lawsuit, might consume a company’s assets. A business attorney at Webster & Garino will help you conduct thorough due diligence when considering a business purchase.
Personal Name on Contracts
You should always establish a business entity, like a corporation or LLC, outside of your name when buying a business. You need to use the business identity when signing all contracts and agreements.
Inaccurate Business Valuation
Calculating the value of a business is always tricky because you have to evaluate many variables. To pin down this figure, you must scrutinize income and loss statements, balance sheets, liabilities, cash flow, and assets. A seller naturally wants to make a business look as valuable as possible, and legal representation could help you detect attempts to inflate figures or hide information.
Wrong Deal Structure
You can achieve a business purchase by buying stock or buying assets. A stock purchase establishes you as the owner of the company along with its existing agreements and liabilities. Nothing essentially changed within the company except stock now has a new owner. On the other hand, an asset purchase represents your acquisition of the actual components of the company. Buyers might favor this approach because they can avoid buying unwanted assets and liabilities. Advice about business law in Indiana will allow you to weigh the pros and cons of these approaches and understand tax consequences.
Get Personalized Advice
Webster & Garino provides entrepreneurs and small businesses with guidance during business acquisitions. Our support will empower you as you evaluate a business acquisition and develop a purchase agreement. Contact us today to make an appointment with a business attorney.
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