Buying a Business/Professional Services Firm
Owning and operating a business, being your own boss, is an inextricable part of the American Dream. It’s no coincidence that a particularly common mantra for politicians—both Democrat and Republican—is “small business is the backbone of the American economy.” And it’s true. According to recent data from the Small Business Association, small businesses account for 99.7% of firms with paid employees.
The Benefits of Buying a Business
For many people, the most obvious road to business ownership is to start their own business. While this can be a profitable route, it takes time, money, effort, and some luck.
Pro Tip
According to a 2016 SBA study, nearly 50% of startups fail within 5 years. 90–95% of acquired businesses, on the other hand, were still operating after five years!
However, buying an existing business can provide the same financial and personal rewards of a startup, while at the same time offering a number of additional benefits, such as:
- Immediate Cash Flow
- Existing Customer Base
- Established Vendor Relationships
- Available Inventory
- Well-Known Location
- In-place and Trained Employees
By opting to purchase a “going concern” business, you can avoid creating a new idea for a product or fighting for some small percentage of an industry’s market share. A going concern business also has equipment, employees, and an existing customer base. For the most part, you can step right in and operate it.
The Process of Buying a Business
There are many steps to purchasing a business—there’s a reason we call it a process. In very broad strokes, these are the six steps to buying a successful business.
-
Find a Suitable Business
This step will involve introspection on your part. Different industries require different technical capabilities and business skills, and you don’t want to invest in a business area that you don’t understand. You also need to decide what type of lifestyle you want the business to provide. After you’ve decided what type of business you want to find, you need to actually find it. To do so, you will probably work with a business broker, who will engage in a search for businesses that meet your criteria.
-
Preliminary Investigation and Initial Offer
Once you or your broker have identified a promising business but before making an offer, you’ll need to do an initial investigation of the business. The seller will provide you with background information about the business (e.g. the types and amounts of assets being sold, industry statistics, and recast financial information). If done properly, with professional advice, this step will save you from wasting time and effort on a full-blown due diligence investigation before you know whether you and the seller can come to agreements on basic issues of sale price or payment terms. If everything looks in order, you will make an initial offer through a letter of intent (LOI) or a purchase contract.
-
Due Diligence
Before the deal closes, you must conduct a detailed and extensive investigation. Due diligence is an absolute necessity for any business purchase, and, no, it is not just a financial review. The goal is to uncover any risks or dangers that might be lurking behind the curtain. You will request various corporate or limited liability company documents, contracts or agreements that the business has entered, and employee-related documents; you will also assess the full financial records, lease terms, business competition, internal systems and processes.
-
Prepare and Sign Purchase Contracts
After the due diligence has been completed, you will draft, negotiate, and sign the purchase contract and any other transaction documents. This step is vital to your transaction and should not be tackled alone. Once you’ve signed the contracts, you are locked into the terms of those contracts—for better or worse. You should work closely with an experienced business attorney to ensure that these contracts are comprehensive and properly protect you and your new investment.
-
Third-party Approvals and Consents
Part of the final purchase process involves contacting other stakeholders. Depending on the legal structure of the business, you may be required to gain written approval from parties that have licensing agreements with the business, clients with existing contracts, or the landlord. The laws governing the particulars for each business entity differ, and you should work closely with your business attorney to ensure that you comply with any third-party obligations you might have.
Pro Tip
Acquiring a professional practice often has unique demands beyond those of commercial businesses. It’s vital that accountants, financial advisors, dentists, and attorneys engage an experienced business attorney to handle the acquisition process.
-
Close the Deal
The closing is the final step in the purchase process where both parties meet to countersign the contracts and other documents that you’ve negotiated throughout the process. All the provisions are reviewed before the parties sign the papers.
The Business Attorney’s Role
The process of buying a business requires multiple sets of skills. Your skill set is business acumen and entrepreneurship, which is an absolute necessity to run the business effectively. But you need a team of professionals to help you deal with the complexities of the transaction.
In particular, throughout the purchasing process there will be legal minefields to navigate. You could face intricate securities requirements, licensing terms, or complicated buyout provisions that require a skilled legal mind to manage. Going it alone can spell disaster for your deal or for its ultimate benefits to you.
Your business attorney will assist at every point in the transaction. Principally, he should be part of the initial offer, he should negotiate and prepare the contracts for the purchase to ensure that each document is legally sound, comprehensive, and reflects the unique aspects of your purchase, and he should close the transaction with you.
Let Alexander Business Law Help You Buy a Business!
When you buy a business, what you want is a legal advisor with real-world business experience, who can learn about and understand your business interests, and who will give you practical advice to help you accomplish your business objectives. Fortunately, here at Alexander Business Law, we are business lawyers through and through. Ed Alexander has advised entrepreneurs and business owners for over 25 years at every step of the purchase process. They have been involved in thousands of successful business transactions and have counseled both first-time buyers and strategic buyers. Ed Alexander is also a Florida licensed business broker and co-owner of FitzGibbon Alexander, Inc., a Central Florida consulting, business valuation, and business brokerage firm. We can work with you through the entire course of the purchase process to help you understand and mitigate your legal risks, negotiate and draft the transaction documents, and close the deal. Call us our offices at (407)649-7777 or email a team member today to let us know how we can help you purchase a business in Florida.Your Path to Personal and Financial Freedom
Buying a business can be tricky. We’ve simplified the process. This book is your go-to resource to learn why buying a business is your path to success and financial freedom.
Request a free copy of our new book!
More Great Articles by Your Orlando Business Lawyers
To Partner or Not to Partner? That is the Question.
Whenever I mention “partnerships” to business owners, I invariably hear groans and
Is Your Buy-Sell Agreement Fatally Flawed?
In 1789, Benjamin Franklin famously wrote in a letter to his friend
An Objective Approach to Dividing Startup Equity
Founders have a laundry list of important decisions to make about their
The Two Partnership Killers And How To Avoid Them
You may have heard a business owner or two tell you that