Purchasing an existing business can be a rewarding decision. However, there are many issues that one must address before undertaking the purchase. Certain issues are more obvious than others. Most people recognize that they have to decide what type of corporate form to use (sole proprietorship, corporation, partnership, limited liability company, etc.) and how much money should be offered. But there are a couple of areas where even sophisticated entrepreneurs can miss the mark. If you are considering purchasing an existing business, don’t miss these potential “pitfall” areas:
Perform due diligence on the actual owners of the business. This involves getting social security numbers, dates of birth, and address information for the purposes of pulling background reports on those with whom you are potentially doing business. This is necessary because you will want to know their financial viability, credit history, the existence of lawsuits against them or the company you are purchasing, criminal activity, and any other information that may be relevant. The failure to engage in this sort of due diligence can lead you into a position of doing business with liars, thieves, and frauds. We see it all the time
Beware of transactional brokers. It is important to exercise caution when dealing with transactional business brokers. Critically, transactional business brokers do not owe you any fiduciary duties under Florida Law. This is because transactional brokers represent both the buyer and seller. As strange as that sounds, such a relationship is becoming the norm. You should strongly consider retaining a broker in a single-agency relationship (which means he/she will only represent YOU) who can assist you in your efforts to find a good business opportunity. The deal can be negotiated so that your broker’s fees come out of the gross sales price, effectively causing the seller to pay the fees. This is important because you will get the benefit of a professional who owes you a fiduciary obligation and who likely has a malpractice policy in case he/she fails in the performance of his/her fiduciary obligations to you.
In addition to the above, investing in the services of a good lawyer is some of the most prudent investment spending you can undertake. Purchasing a business is a transaction that has broad-ranging life/financial implications. Statistics indicate that such purchases are likely to be fraught with difficulty. However, if you proceed with a purchase from a well-informed standpoint, you can minimize the potential downside and make it more likely that your new business will be a success.
If you are need of assistance with the acquisition of a business, please contact the Boatman Law Firm at (239) 330-1494.
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