Buying a business can be a great opportunity for those who want to be a business owner rather than an employee. Once you’ve found a business that looks promising, you will want to take the time to do some digging into the history of the business to ensure it is as smart of a purchase as it may seem at first glance. Some of this research can be done on your own, and other items can be found with the help of an attorney or other researcher.
This will take some time and effort, but it can save you a lot of trouble down the road. The following are essential historical records that should be looked at before moving forward with any business purchase.
Conduct a Title Search
A title search is one of the most important things you can do whenever buying any property, including businesses. Title searches can discover many issues that could potentially lay dormant for years, only to pop up and cause problems in the future. Things like liens from past creditors, for example, can be enforced against a business even if it is sold.
Historical Profit & Loss Data
There are many things that businesses can do to make their company look more attractive to buyers. No matter how good a company looks today, however, a quick look at the profit and loss data from the past several years can help paint a more accurate picture. A business that has had profits falling for the past five years, for example, is going to be more of a concern than one where the profits are steady or even rising.
Age and Value of Physical Hardware
When buying a business, you will almost always get all the physical hardware used to conduct the business. Knowing how old the equipment is, what its expected lifecycle is, and whether the equipment was purchased or leased is very important. A common example of this could be computer equipment. If the owner failed to keep their systems up to date, you could be required to pay a very significant amount of money to purchase modern equipment that is needed for the business.
Business Founding Documents
Many small businesses start out as a hobby and grow into something successful. When a business is founded, the structure of the organization may be quite different than when it first began. If the owners don’t keep their legal documents updated, it can cause many issues for a buyer. For example, if the business started out as a partnership between two people, but one of them lost interest early on, it is important that they were removed from the business ownership documents. If they weren’t, they will still be the legal owners of half the business!
Get the Help You Need
Doing research on a business can be quite difficult if you don’t have the experience. It can really be hard to even know where to begin when searching for some of these documents. Contact The Trembly Law Firm to schedule an appointment to discuss your opportunity and get the help you need to ensure it is a great investment.