Factors to Consider Before Buying an Existing Business

Factors To Consider Before Buying a Existing Business in Los Angeles

Before you decide to buy an existing business, rather than starting your own business there are a few facts you may want to consider. While, buying an existing business may provide many advantage, its important to do your research and consider consulting with a Glendale business attorney prior to signing any agreements to ensure you have covered all areas to decrease the probability of any issues presenting itself in the future. In determining whether or not to buy an existing or established business consider some important factors such as valuation of the business, negotiating the business purchase, purchase agreement, and do your due diligence.

Importance of Receiving Accurate Business Valuation

Its important to first determine the value of the business you wish to buy so that you don’t end up over paying for it. There are a handful of methods for evaluating businesses, thus it important to understand which method the business owner used when it computed its business value. It is important that you determine or receive information regarding the actual, taxable “profits” or “losses” for the business. If you are unsure how business valuation works, it is recommend you speak to a experienced business attorney before entering into a purchase agreement. Our business attorneys are expert economists who have vast experience in determining valuation of businesses and can review and consult you on your business purchase as well as, business valuation. We invite you to contact our office at (310) 943-1171 and schedule a consultation.

Five Common Business Valuation Methods

There are five (5) common business valuation methods, which include the following:

1. Asset Valuation
2. Relative Valuation
3. Historical Earnings Valuation
4. Future Maintainable Earnings Valuation
5. Discount Cash Flow Valuation

California Business Purchase Agreement

Upon finalizing the sale of a California business, generally the seller will have his or her business attorney prepare a Purchase Agreement, which will sets forth the terms and conditions for the purchasing of the business in a binding contract. It is highly recommend that you retain a business attorney to review all the details of the purchase agreement to ensure you didn’t miss anything throughout the process. Otherwise, you may end up with the shorten end of the stick, which is something you want to avoid, of course. KAASS Law would be happy to assist you with these matters. For the most part a purchase agreement includes details about what you are purchasing with the sale of the business, such as, inventory, customer list, equipment, and any other property.

Do Your Due Diligence Before Buying a Existing Business

Conducting your due diligence prior to purchasing an existing business is critical!

Before you commit to anything make sure you do your research on the company from top to bottom, not leaving any loose ends. Often times, business owners quickly jump the gun and fail to investigate and ask questions and find themselves in agony a few months down the line.

For instance, a business owner purchase an existing business and is in violation of zoning laws, has judgements against them, or has a pending lawsuit. Other times, a business owner may purchase a business and the office space that was leased with the purchase has reoccurring pipping issues which cause flooding. In cases like these, business owners will find them filing business insurance claims because their unit was damaged due to the flooding, which results in temporary stopping business operations. In such cases, if an owner had conducted their due diligence, they may have discovered that the reoccurring pipping issues.