Buying a business is an investment that has the potential to provide financial benefits to the purchaser. However, legal aspects of completing a business purchase require buyers to consult a lawyer to fully understand all rights and responsibilities during this process.
Legal History of the Company
A legal professional will be able to help a purchaser discover whether there are any legal issues that could cause problems after a group or individual decides to buy a business. For example, lawsuits that are currently pending could become the responsibility of a new owner. Other legal aspects of the company that should be thoroughly reviewed prior to a purchase include compliance with OSHA standards, legality of contracts or agreements that are already in place and proper recording of financial information.
Determining whether a business is worth buying is largely dependent on the past financial success of the company and the potential for future gain. Buyers will need to secure copies of a company’s balance sheet and income statements to complete a full financial analysis of the company. Ratios that should be calculated to determine whether a company has truly been profitable include accounts receivable turnover, current ratio and inventory turnover.
Purchase Price: Valuation and Negotiation
Evaluating the value of a company before making the decision to buy a business is essential to the process of negotiation. While the balance sheet will reveal financial information that is relevant to the overall value of a business, there are non-monetary aspects of the business that must be taken into consideration.
The reputation of the business can add or subtract value depending on whether clients have been satisfied with goods and services provided by the company. The location of the business also comes into play. Is there a lease that will need to be renegotiated once the new business owner takes over? The time consuming process of negotiating a lease could take value away from the company and lower the purchase price.
The decision regarding whether to keep current employees after the company changes hands may not be entirely up to the new owner. Potential buyers should review union contracts with a lawyer prior to purchasing a business to fully understand any responsibilities that would be transferred with a sale.
Buyers may also wish to discuss whether employees plan to stay after the purchase has been completed. Employees are often central to the business, so it is important to find out how significant the role of the employees is in the success of the current business to assess whether keeping these employees is necessary for future profitability.
Buying a business requires certain tax payments to be made related to the transfer of ownership. These complicated tax issues are best understood when a lawyer can explain tax implications to the purchaser. Failing to consult a legal professional could lead to an underpayment of taxes that will result in substantial fines and penalties.