If success is the ultimate goal when buying a business, then it must be understood that preparation and due diligence is critical to the outcome. Hastily-made agreements and decisions often doom businesses when a new owner takes control.

Careful investigation of a business’ assets, liabilities, and history must be performed in order to maximize the chances for success and eliminate uncertainty during the acquisition process. The proper planning and research takes time and should be meticulous, and never rushed.

Knowing What You Want

A good starting point has to be knowing what you want. Is the purpose of your purchase to net a certain amount on your investment? Or are you more focused on realizing some lifelong personal dream and doing what you love for your work? Is the purchase a buy and sell in a short term period with an eye on netting a profit? Knowing what it is you want will enable you to shape the scope and methodology of your investigation of the company’s worth and history.

Business history may be important if you will be continuing the company under the same entity structure, and thereby inheriting potential consequences due to past regulatory violations, as an example. Having a firm grasp on the reason you are buying, and your ultimate goal for the company after purchase is key in determining the scope of research that should be undertaken.

Purchase Agreement and Closing Procedures

Structuring your purchase agreement to fit the nature of your business acquisition is extremely important to achieving a successful purchase in the months following acquisition. Having an agreement which favors the seller or the broker can cause countless unforeseen headaches during and after the purchase.

It is also important to clearly and specifically list out all of the logistics in the seller turning over control of the operation to the buyer. Timetables for payments, taking control of the assets, having access to the accounts payable, licenses, and accounts receivable, and corporate structure must all be investigated and analyzed to ensure a smooth transition, and eliminate as much uncertainty as possible in completing the purchase.

Full Disclosure and Knowledge of the Industry

Obviously, having full disclosure of assets and liabilities, inventory, personnel information, contracts, and current obligations of the business will further eliminate uncertainty when purchasing an existing business. Full disclosure may be synonymous with certainty, but the information shared by the seller must also be analyzed and understood by financial and industry experts to be useful.

Without knowledge of the industry, the information you receive will not be helpful to you in reaching a sound decision and a level of certainty in your purchase. Many times, business purchasers have a good knowledge of the industry but are lacking financial acumen to see the difference between a good or bad deal. In other cases, the opposite is true, such as when financial wizards or investors lack any knowledge about the industry.

These are only a small sample of the issues which should be considered prior to purchasing a business. Consulting with an experienced business acquisition professional is critical when purchasing a business unless you are a seasoned expert. Even then, overlooking a detail in company history, background or financial matters can be dangerous. At Kerkman Wagner & Dunn we have been practicing business litigation in Wisconsin since 1983. Contact us and speak with one of our Milwaukee business attorneys and let them help you seek to eliminate uncertainty in your future business acquisitions.

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