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Tax Blog

Planning on Buying a Business? Here is the Outline you need!

Buying a business is an exciting thing to do! But it can also be extremely nerve-wracking to go through the process alone. There are all kinds of accounting issues to deal with, legal documents to go through, lenders, insurance, and something called due diligence that you may be googling to figure out what that means.

If I haven’t scared you off yet from buying a business, I’m going to give you a general outline for buying a business whether it’s your first time buying a business or your 100th time buying a business because the same general principles apply every time.

Step 1 – Assemble a team

Think of this step as gathering the Avengers before the final fight against Thanos. Your team is going to guide you through every step of the process and step in on your behalf when things get hard. Some important members of the team include; a Certified Public Accountant (CPA), a lawyer, a lender, an insurance advisor, and possibly a business broker. These members are going to review the business’s financials, review and prepare legal documents, assist in the purchase, give informed options about different types of insurance to meet your needs, and even help to assist you in finding a business that meets your needs.

Step 2 – Letter of Intent

This step is not as scary as it sounds. A letter of intent is generally a nonbinding agreement that allows for a more thorough investigation which is the next step in the process.

Step 3 – Investigation aka Due Diligence

There are those words again, “due diligence.” What does it mean?! Well, it’s a bunch of things under the umbrella of two relatively simple words. Due diligence is simply the investigation that occurs where your team (Remember the Avengers you have assembled in Step 1) analyzes financial statements, tax returns, strategic plans, legal, regulatory, tax, liabilities, and a whole bunch of other things that would turn this simple outline into a full-length novel if I were to break it all down in detail.

Step 4 – Negotiate Terms

Everyone has that vision of themselves as the tough negotiator that is going to get one over on the other party. Think of when you bought your last vehicle, I bet there was some haggling on out-the-door pricing, monthly payments, or the total price of the vehicle. This is that part, where you use the information that your team has learned from the investigation portion to haggle for the price, you’re willing to pay. Because your team did the legwork, you have a well-built foundation and can justify your valuation with the seller.

Step 5 – Close the Deal

Congratulations, you just bought your new business! “But wait, there’s more!” (If you get this reference, you’ve watched tv at 2 am and we are best friends now). This step is the culmination of all the hard work put in, you get the Bill of Sale, and sign the purchase agreement and the security agreement.

The professionals at the Center for Financial, Legal, and Tax Planning, Inc., are a full-service team (The Avengers) that will assist and guide you through every step in the process of buying a business. For more information, please reach out to us at (618) 997-3436.


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