Startup Junction

How to buy a Profitable Business

Investigate The Business

You will be probably pouring your life long savings into your business. It is very important that once you have identified a business you should look into every aspect of it, double check every document and make sure that reasons the owner is telling you that he is selling it are the right reasons. You should hire an attorney to review the legal and organizational documents and an accountant to perform an evaluation of the financial condition of the business.

Letter of Intent & Confidentiality Agreement

In order to share sensitive information about the business a seller may require you to write a letter of intent (a non-binding offer) and a confidentiality agreement. The letter of intent should have a proposed price, terms, and conditions for the sale of the business. You should make it clear that it is not an offer to buy or a purchase and sales agreement. You should also sign a confidentiality agreement agreeting that you wont' use information about the seller's business for any other prupose.

Evaluate Contracts and Leases

You should evaluate all the contracts and leases and learn about any other obligations. Have them reviewed by your attorney and accountant to make sure that they are in your favor. If needed re-negoitate them to get better terms.

Financial Statements and Tax Returns

Your accountant should examine financial statements and tax returns from the business for last 3-5 years. Ask the seller to get an audit letter from a reputable CPA firm. Do not buy a business without that. You should carefully evaluate all liabilities so that you do not land into any trouble because of current owner's actions.

Other things to look at

You should evaluate the following:

1. Bank Statments
2. List of Cusotmers
3. Sales and Marketing Information
4. Suppliers and Supplier Contracts
5. Plant & Equipment
6. Inventories
7. Receivables
8. Organization info, Employees, Payroll etc.
9. Federal, State or Local Licenses
10. All onwers and share holders

Pre-Purchase Due Diligence

Licenses and Permits

You should learn about all the licenses and permits and check them with the business you are interested in buying.

Zoning Requirements

You should make sure that the business which you are interested in buying meets all the zoning requirements. Your local city hall can help you with it.

Environmental Concerns

You should check with EPA to make sure that business in compliance with all the Environment regulations.