Don’t Buy a Business Without Knowing These 5 Essential Things

If you’re buying a business with a lot of potential in terms of growth and financial gains, you might be tempted to get into it and sign a deal as soon as possible. While the business may pose such a tremendous potential at face value, it may also have certain pitfalls that you won’t see unless you do thorough research.

Sure, you have the money to make an offer the seller can’t refuse. But if you don’t want to fall into some legal and financial troubles in the end, the wise thing to do is consider some key things before buying a business in Utah. Make sure you’ll remember these five things before you close that deal:

Work out details of the LOI

The letter of intent (LOI) is a document that is likewise referred to as the term sheet. It contains all relevant provisions of the sale, such as payment terms, purchase price, and assets that both parties will get to keep. Keep in mind that you must work out as many details as you can with the seller as your attorney will use the content of the LOI in drafting the legal contract between you and the seller.

By ironing out as many terms and conditions as possible in the LOI, your lawyer will have an easy time finalizing the contract that you and the seller will have to sign to make the contract binding.

Get an expert’s appraisal

Just because the seller said that the business is worth $1M doesn’t mean that it’s really worth that much. If you want to know the fair market value of the business you want to buy, you should consult experts like a financial analyst for a proper appraisal. You could also ask your accountant to estimate the future earnings of the business based on various factors such as predicted market trends and the business’ current performance. Your experts’ opinions on the value of the business should form part of your bargaining chip as regards how much you would buy the business for.

Do your research about the business

woman doing research

It’s critical to know as much information about the business as possible before inking the deal. Among other things, you have to investigate whether the business is involved in any legal case or if it has a sterling reputation among clients. You should also check whether the business owner has been diligently paying all taxes and if the owner has outstanding bank loans in relation to the business. Don’t hesitate to ask the hard questions and do your homework as any information left out could pose a problem in the future.

Hire a reputable CPA and attorney

You should hire a reputable lawyer and a CPA (or a CPA lawyer) to assist you in the financial and legal matters concerning the deal. This is important since there could be a lot of research and leg work that only experts like them could handle. These may cost you a considerable amount of money but if you’re buying a business that is worth significantly more than their paychecks, then it’s clearly the right thing to do.

Consider your budget

Finally, you must factor in your budget for the sale. Are you paying for the business from your own savings or are you taking a loan for it? Knowing your source of funds for the purchase of the business, as well as your top dollar, should help you during the negotiation phase.

The key is to know your limits and try to bargain within your limits and never above. Just keep these things in mind so you won’t make costly mistakes throughout the negotiation and buying process.

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