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Buying In, Cashing Out

2 min read

Buying an existing business offers a number of advantages compared to starting a company from scratch. Selling a business is a significant step that allows an owner to pull value from their hard work and move on to the next phase of their life.

According to the California Association of Business owners, retiring baby boomers will sell or bequeath around $10 million in assets across 12 million privately held businesses in the next 20 years, and 70% of those businesses are expected to change ownership.

“There’s all kinds of ways to make money, and you’d be surprised at all the kinds of businesses that are out there,” said Casey Grimes, senior business broker at FORVIS Wealth Advisors and a former business owner.

Many owners are aging out, but with no heirs available or interested in taking over the company, they don’t have a plan of succession. Younger entrepreneurs are looking to get into business and may see an existing enterprise as a quicker way to get up and running.

Neither buying or selling, however, should be tackled without effort, planning and preparation.

When Buying

• Don’t buy into a market or field you know nothing about. Look for a business that dovetails with work you’ve previously done or have a familiarity with.

• Due diligence when buying a business includes checking its financials, assets, employee files, existing contracts, leases and purchasing agreements, along with its organizing documents, intellectual property registration and licensing, and any past lawsuits.

• Unless you’re merging, you’ll either consider a stock purchase or asset purchase. Stock purchases include assets and liabilities. Asset acquisitions mean you’re purchasing only the assets you want. Consult with an accountant or legal or tax counsel and negotiate the purchase agreement which includes terms of payment and other checklist items.

• Work with professional valuation specialists to determine the business’ value. The offer you make can be a combination of cash, debt, equity assets and more. A letter of intent should include purchase price, deal structure details, due diligence requirements, expectations respecting the purchase agreement, closing schedule and other material details.

• Your closing checklist should include approvals from pertinent parties like landlords, stockholders, boards, customers, creditors and other third persons.

• Closing the deal can be done in person or remotely as long as all pertinent documents are signed and in the right hands. You should be ready to pay the purchase price at this time.

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