Purchasing a business or the assets of a business can be a risky proposition. One way you can decrease the risks to yourself as a buyer is to obtain as much information about the business as possible.
The following is a list of places you will want to “kick the tires” on almost all business purchases:
- Inspection of Assets. You may need to get the assistance of a professional to assist in this process. You will not want to rely on valuations or appraisals that are out of date or created for the benefit of the seller.
- Review of financial statements. Try to review audited financial statements if possible. You may need the assistance of an accountant to review the financial statements. Ask for documentation of any questionable information. As part of your review of financial information you should also review recent tax returns.
- Customer and supplier lists and contracts. If after the purchase of the business you will be relying on existing relationships with customers and suppliers you will need as much information about those customers and suppliers as possible, including any existing contracts.
- Corporate Records. You will need to review the corporate records (i.e. articles of incorporation, bylaws, recent board and shareholder meeting minutes) of the seller to ensure that the individuals you are dealing with have proper authority to sell the stock or assets of the business.
- Employee Matters. If you are purchasing all of the stock or substantially all of the assets of an entity you will need to obtain detailed information about the employees including any pension plan or other employee benefits. You need to know the status of any liabilities of the business to its current employees, including accrued vacations and options or rights to purchase stock.
The above list is not intended to be exhaustive but simply illustrative of the type of information you need to obtain in almost any business purchase that you are considering. You may hear accountants and lawyers referring to this as performing “due diligence.”
Knowledge is power in the hands of the buyer of a business. Information about the business you are purchasing will reduce your risks and put you in a better negotiating position with the seller.
Author: Lori Young (bio)
Phone: 812.452.3560
Email: lyoung@bamberger.com
Tags: assets, audits, business purchase, Lori Young, record keeping