Questions To Ask When Buying A Business- Part 2

LEGAL
What are you buying? If it is a stock purchase is it a C Corp? S Corp? LLC?

• Is the business in good standing with the state and feds?
• Any pending lawsuits? Governmental proceedings?
• Survey on land
• Any independent contractors that should have been classified as "employees"
• what is the property zoned?
• Can any of it be sub-divided at a later date and sold off?
• Does the owner really own it? Do they have the legal authority to sell?
• Any workman comp claims? Unemployment claims? -any patents or copyrights of logos?
• Any business license and are the transferrable?
• Any tax registration certificates? Are they transferrable?
• Is the business in compliance with zoning laws?
• Any toxic waste or environmental problems
• Do they own photos, testimonials that may be used in print collaterals or the website?
• Any employee contracts with non-competes?

MARKET PERCEPTION
What is it? With Customers and Vendors?

• What is its brand position? Is it healthy?
• Do they have a good reputation?
• Do they have a customer database?
• Do they have a prospect database?
• Do they know how large their market is?
• Do they have a CRM?
• How are they perceived in the marketplace?
• Who are their key partners and alliances?
• Are their prices high? Low? Middle?
• Are their competitors who are larger, cheaper, quicker, faster that have the customer's attention?
• What are the barriers to entry to this business?
• Does the business have significant vendors or customers?
  • Any vendors that we use that we purchase 10% or more of our product from?
  • Any customers that make up 5% or more of revenues/sales?

  
MOTIVATION TO SELL

• Is it a motivated seller and why?
• How much debt does he need to pay off? (mortgages loans?)
• How much cash does the seller immediately need?
• Does he need that cash all at once?
• Is he looking for a way to avoid capital gains? Or reduce or spread out his tax liability?
• Are there other family members involved in the decision making process?
• Has the reputation of the company been damaged at all?
• How dependent has the business been on the current owner? Relationships with employees? Customers? Vendors?

 
STRATEGIES TO CONSIDER WHEN BUYING A BUSINESS

• Consider buying on installment
• Don't ever be shy in asking for information- your strategy is to "discover" as much as you can
• Consider holding back some of the purchase price until after closing- say six months or a year in case you suffer a loss due to the owner failing to "disclose" information
• Consider buying land in one deal and the company in another- if the two are indeed owned separately
• Consider and 'earn-out' provision where seller only gets paid if certain financial milestones are met