Buying a Business - What’s the Process?
Well, it’s complicated because buying a business is a big deal. Even if you negotiated a good price, you still need to make an investment in terms of time and resources. Making the best decision is critical.
When you are considering buying a business in Georgia or elsewhere in the country, you will need to have an experienced business lawyer on your side. There are a number of laws, regulations, and best practices to consider when acquiring a business, no matter its size. And the truth is that you might have no idea what these are. You should work with an attorney to determine the steps you must take for a successful business purchase. Our Georgia business lawyers can assist you with this process. So, what are the steps to buying a business?
Below you’ll find a simplified description of the typical steps.
Find a Business You Want to Purchase
The first and obvious step in any business purchase is to find an existing business that you want to buy. You can work with a business broker or search on your own using resources like BizBuySell.com to identify potential opportunities that would work for you. Consider the types of businesses and markets that interest you and meet your needs.
For some guidance on questions to ask yourself in this early stage of the process, you can check out our Business Buyer’s Self Evaluation.
Determine a Value for the Business
The next step after finding a business you want to buy is to determine a fair value for the business. Use that valuation as you work with your business broker or CPA to decide on a purchase offer price. There are a number of different ways to value a business, as The Hartford explains. You should seek advice from a professional about valuing the business based on assets, revenues, earnings multiples, a discounted cash-flow analysis, or other useful methods.
Decide on the Deal Structure
There are several different ways to go about purchasing a business. The appropriate structure will depend on your needs as well as the existing structure of the business you plan to buy. In general, you can choose between a merger, a stock purchase, and an asset purchase.
Here’s where your attorney will be particularly helpful. There are different legal consequences to different purchase structures. For example, do you know the risks of buying a business entity versus just the assets of a business? Your attorney will know this and can discuss the legal and tax consequences of each type of deal structure with you and your CPA.
Submit a Letter of Intent and Purchase Agreement
Next, you can enter into an agreement with the seller called a letter of intent (or LOI). Again, your attorney will play a critical role. This is a basic document that confirms the details of the planned sale, including expectations about the purchase price and payment structure, the deal structure, the due diligence period, and a closing timeline. It demonstrates that the buyer and seller are in agreement on the important terms of the deal. If the parties can’t agree to basic terms, there’s no point in spending more time trying to make a deal.
An LOI is, however, non-binding. So, it is important that a purchase agreement be prepared based on the LOI. The purchase agreement is the binding contract between the buyer and seller and puts forth more of the details pertaining to the transaction.
Our FAQ section provides more information on the LOI.
Conduct Due Diligence
Due diligence is critical to buying any business. In the process of due diligence, you will be able to obtain all the necessary legal and financial materials related to the business. This will make you feel comfortable moving forward with the purchase. The specific documents you review will depend in part on the structure of the existing business. In general, due diligence can involve review of any of the following: organization documents, business tax returns in the past several years, income statements, balance sheets, business debts, existing business contracts, customer and client information, commercial lease agreements, marketing materials, information concerning existing or pending litigation, and much more. The due diligence period also gives you time to discover any liens or other matters that might affect the business or the assets. The due diligence period allows you, as a buyer, to determine if you like what you see in the business and want to proceed with the purchase. If you aren’t happy with the findings, your attorney can propose modifications to the purchase agreement terms. If not, you can move on to a better deal.
Our FAQ provides more information on the due diligence process.
Close the Business Transaction
The final step in purchasing a business is closing the deal. Your business law attorney will assist you with the closing, which will involve working with the lender (if financing is involved), finalizing all necessary documentation, and disbursing the closing funds properly.
Having an attorney serve as the closing officer for the closing funds is a smart thing to do. Giving the closing funds directly to the seller without having a third-party fiduciary (who has responsibilities and obligations when dealing with other people’s money) is very risky. Learn why from the answer to this FAQ about putting funds in escrow when buying a business.
Contact a Georgia Business Lawyer Today
Still thinking about purchasing a business? An experienced business law attorney can assist you with the necessary steps, from choosing the deal structure to closing the deal. Contact Nebo Law today for more information about the services we provide for business purchases and mergers and acquisitions in Georgia.