Purchasing an existing business can be exciting and lucrative. Not only is it a quicker way to acquire skilled staff, but you also enjoy established customer relationships, helping you avoid the heavy lifting. However, when buying a business, it is essential to approach cautiously because you may make plenty of mistakes along the way. If you are planning to buy a business, it is critical to consult a lawyer experienced in business sales and litigation to guide you through the process and protect your rights. Let’s explore some costly mistakes entrepreneurs make when purchasing a business and how to avoid them.
Due diligence is crucial for a successful business purchase. This is an opportunity to establish whether the seller truly owns the business, the assets, and the reasons for the sale while ensuring no one has a legal claim. At the very least, you must conduct a Uniform Commercial Code (UCC) search to check for outstanding liens. You also need to verify that the business is properly licensed and that those licenses can be transferred to you. Has the business ever been fined, shut down by authorities, or involved in lawsuits? Are the assets and equipment in good working condition, and do they come with warranties? Even the physical space matters because issues like mold, termite damage, or non-compliance with regulations, like ADA requirements, can become costly headaches.
Most importantly, you must review the company’s books and records to ensure accuracy. While you might be tempted to handle the view independently, it is best to involve a professional team, including a lawyer, accountant, and business consultant, as these professionals know what to look for and can help you avoid a bad deal. Many buyers make the mistake of skipping thorough investigations, only to regret it later. Don’t rush this step.
It is easy for buyers to focus on the company’s visible assets and forget about hidden liabilities. This can significantly impact the value of the business and future operations. To avoid making this mistake, check for any pending lawsuits or outstanding loans, review employee contracts and benefits obligations, and review any potential environmental liabilities, especially if your business requires a physical location.
You want to ensure the transition will occur smoothly under the new ownership. Ignoring a company’s culture can lead to friction, low morale, and even key employees leaving. Before buying, take time to understand the company’s values, leadership styles, and team dynamics. If their culture does not align with yours, you may need to consider whether the efforts of merging cultures are really worth it.
Failing to involve a legal expert can expose you to huge risks. It is in your best interest to work with a skilled business litigation attorney to ensure all agreements are airtight, including contracts with clear protections such as warranties, indemnifications, and escrow accounts. Without these, you risk being left dealing with unexpected liabilities.
Another costly mistake buyers make is overpaying for a business because they fail to carefully assess its actual value. To avoid this, consider hiring a professional appraiser who can review the financials thoroughly and advise accordingly. Most importantly, do not hesitate to walk away if the numbers don’t add up.
If you are considering buying a business, contact our skilled business litigation attorneys at SAC Attorneys LLP today to review the contracts and safeguard your investment.