subject: Steps and Pitfalls of Buying a Business [print this page] Steps and Pitfalls of Buying a Business Steps and Pitfalls of Buying a Business
You need to contact a business attorney when you consider buying a Virginia business. While every business transaction is unique, most follow the same basic steps:
Pre-negotiation
Preliminary discussions
Formal agreement
Closing
All steps require you to perform due diligence. This is an investigation into your potential investment to make sure it is sound and reasonable before purchase.
In pre-negotiation, you learn the very least a seller will accept. It is important to find this information out early on so that you do not begin negotiating for a business you cannot possibly afford.
You also need to examine the seller's financials by reviewing certain documents:
Balance sheets
Profits
Losses
Income and expenses
During the preliminary discussions and negotiations, you must be sure to perform an intensive investigation into the seller and his or her business. This includes reviewing a variety of documents and physical property:
Assets
Employment contracts
Equipment leases
Income tax returns for the past five years
Liabilities
Mortgages
Real property the business owns or leases
What happens if you fail to do your research
If you fail to do your research before you purchase a business, there is a good chance you will be stuck with an investment that fails to profit. You have to insist on reviewing documents and should be skeptical of a business owner who is reluctant to provide them.
You may find out that you have purchased problems if you fail to do your due diligence. In addition to the steps mentioned here, you should also consider speaking to people and making visits yourself. Discuss the commercial purchase with the employees, management, and union workers before you sign any paperwork.
If you find that the employees are not aware of the potential sale, there is reason to be wary. A seller who is not honest with his or her workers may not be honest with you and may leave his or her employees resentful.
Your business venture also benefits from the advice and guidance of a commercial attorney.
