Choosing Your Next (or First) Business Purchase

It may be that you are bored with working for someone else, or you have a new source of capital that you want to reap financial rewards. Or you have just sold your business, have taken some time off, and are ready to re-enter the business and entrepreneur world.  The first decision that will inevitably need to be made is whether to: (1) Start up a new business and build it up from the ground level; or (2) Acquire an existing business  and try to operate it for a profit.   If an entrepreneur or small business owner is at this stage that person already has some semblance of the type of business and market that he/she would like to enter.  Then comes the next question: what do I do next? 

If you want to start a new business, the first step is to form a legal entity, such as a corporation or LLC, and consult with a small business lawyer to determine how to structure operations and ownership of your new company.  It is also important at this stage to determine the rights, responsibilities, and ownership structure if you are forming a new organization with partners.  It is very important to set out the terms of the partnership from the outset so as to avoid any confusion or dispute about profit and loss sharing, amount of capital contributions, or buyouts of other members when that time comes. Then you can set up entity bank accounts, pay all witholdings and taxes, and enter into legally binding relations in the name of the company, such as real estate lease agreements, equipment leases, bank lines of credit, mortgages, and other types of business contracts.  Then, in some cases, a new business can engage in various types of fundraising through private or institutional investors.  Finally, the next step depends on the needs for your type of business. You may require supplies, inventory, equipment, office or production space to further the goals of your business.  This is an oversimplified summary of the steps on how to start a business, and if you have questions on how to start a business it best to consult a qualified small business lawyer, certified public accountant, and/or a business consultant. 

If you decide that you would rather avoid the start up headaches and growing pains of a new organization, it may be better to purchase an existing business.  There are numerous business brokers and business to business (B2B) sale web-sites that are listing numerous business for sale.  When you buy an existing business you are buying an existing revenue stream, customers, goodwill, relationships, and, in some cases, inventory, equipment, employees, managers, commercial real estate leases, licenses and permits, and other valuable assets.  In this case, it is very important to verify with the broker what portions of the business are being sold, and you should contact a business lawyer to ensure that you receive the benefit of your bargain. After you gain an understanding of what you are purchasing, you should retain the services of a small business lawyer, accountant/ CPA, and other business consultants to assist you with your due diligence. This may sound like a daunting and expensive task, but the counsel and expert advice that you will receive will help you avoid significant financial and legal problems and ensure that you successfully operate your business.  The purchase of an existing business can be nothing short of a mine field of financial and legal liability, and it is best to err on the side of caution before you sign a letter of intent.