Important Things You Should Know Before Buying a Business

Buying a pre-existing business is a hectic yet extremely exciting time for potential buyers. After all, there are so many things potential owners must do: narrow down locations, scope out the storefront, and examine the market, among others. And that's before you get to the paperwork! Luckily, there are some tips out there that can make the process much less stressful.

One important thing to remember is that buying a business is a big decision. It helps to do all your research before you actually begin talking to brokers and owners/sellers. Having all of your information prepared and organized beforehand not only ensures that you are informed, but that potential sellers will take you more seriously. One of most important documents you should prepare is an "Acquisition Criteria" sheet outlining your expectations for your new business.


You should also consider how much money you are willing and able to spend before you start interacting with potential sellers. Most business owners will expect you to be able to put anywhere from 30-100% down on your purchase, so knowing how much cash flow you have available will save you time by allowing you to know from the start what businesses are in or out of your financial reach. You also may want to look into getting your financials reviewed for financing before you formally begin the process. It is perfectly understandable and expected to need financing in order to purchase your new business, but anyone who works closely with banks knows that they can be very unpredictable and finicky when it comes to approving large business loans. For this reason, you should at least be certain that you will be able to get a line of credit before you begin, if not an estimate of how much you will be able to put down.

Once negotiation actually starts, there are two key points to remember.

Never, ever sign a contract without consulting the proper professionals. Making a large purchase such as this is not an area where you should skip professional advice. Remember, a fresh pair of eyes looking over a contract always helps! An attorney can ensure that you are not being taken advantage of as well as advise you on the legal particulars of the contract. You should also contact a CPA to closely review the business' financial records. Remember that the statute of limitations for breach of contract in New York is six years long and if you purchase a business with a questionable record you will be liable for any lawsuits that develop.

Know that you will need to sign a confidentiality agreement. Usually an owner/seller will need a potential buyer to sign a confidentiality agreement before they will give any access to financial records or detailed information about the business to you. The confidentiality agreement is nothing to be wary of. It simply ensures that the information that you learn about the business' private dealings is not made public information in a way that could harm in the business in the event that your negotiation falls through.

- Kevin McKernan