If you are planning on buying a business, then it’s important to do your homework regarding its present and future profitability. Some businesses look good on paper, but when you dig a little deeper, the picture may not be so rosy. It’s important to do your due diligence not just for the sake of ensuring the business is a good investment, but also to learn more about what it takes to run this business in particular: who their target market is, whether there’s any pending litigation against the business, and much more.
Knowing what questions to ask is of paramount importance, so to ensure you’re prepared, we’ve put together a useful but non-exhaustive list of some important questions you should ask as you’re considering whether to purchase a particular business. If you have questions about your investment or need related legal advice, contact the experienced business purchase attorneys at Mullen Holland & Cooper at your earliest convenience. We can provide you with sound legal advice as you contemplate this exciting new venture.
What’s the value of the business?
It’s important to ask the business owner or their representative how they arrived at the asking price. In general, most businesses are sold at two to four times their revenue after wages are paid to employees.
What do the business’s financials look like? Are they accurate?
Not all businesses look as good beneath the surface as they do at first glance. You should do your due diligence and determine the business’s financial health, as best as you can. There are several documents you should request, including:
· Profit and Loss balance sheets for at least the past two years
· Recent tax returns
· Financial statements for the current year
· Business Activity Statements for the four quarters preceding the sale
You also need to ensure that the financial records are accurate by scouring them for potential inaccuracies. You may want to consult with a business purchase attorney and have them review the records to determine if there are any discrepancies in the business’s finances.
What assets are included in the purchase?
You should ask for a list of the assets that are included as part of the business sale. These may include intangible items such as employee contracts, ad accounts, and the company’s domain. Physical assets may include equipment if it is owned. You should also determine if intellectual property is included in the sale.
Will the business keep its current staff?
In most cases, if all you are purchasing is the business’s assets, current employee contracts will end when the business transfers over to you. You will have the opportunity to offer the staff new contracts if you wish, but you should determine whether employee entitlements are included in the sale or not.
Is there any pending litigation against the business?
If there is any pending litigation against the business, you may want to reconsider the purchase — or, at the very least, the seller’s asking price. If the seller doesn’t disclose the legal issues from the outset, then it is probably not worth pursuing the purchase. And if you decide to press on with the acquisition, you should ensure that any legal issues that are pending against the business are resolved before you purchase it.
Some legal issues are minor and may not inhibit the business’s ability to function — but other issues, like Google penalties and copyright violations, could make running the business difficult. Either way, be sure you are in the know about any pending lawsuits the business may be facing.
Contact an Experienced Business Acquisition Attorney in North Carolina
If you’re seeking legal advice regarding the acquisition of a business, speak with one of our experienced North Carolina business purchase lawyers today by contacting Mullen Holland & Cooper for a free consultation.