Buying a Business in South Florida
Introduction
Being in business for yourself can be a daunting prospect. First of all you must keep in mind that running your own business is more than a job, it is most definitely a lifestyle change.
There will be hard work, long hours, decision maker and most likely perform many different jobs to be successful in your own business. Even with this in mind almost all business owners will tell you that they would never go back to being an employee.
Education
All buyers should feel comfortable when decide to buy a Miami business, so it is imperative to educate & explain the process to help each buyer understand the realities of any business relative to the current marketplace.
Buying a Business
Running a small business appeals to may people, but many can’t handle the complications of a startup. For prospective business owners intimidated by the risk of their own startup business, buying an existing business may present a safer alternative. A healthy, existing business has cash flow, a track record and a greater prospect of ongoing success. Read More about Starting your Own Business »
The main reason to buy an existing business is the drastic reduction in startup costs of time, money, and energy. In addition, income ill continue on to you due to existing inventory, accounts receivable and ongoing client base.. With an existing business you get pre-existing customer faith and more financing options, available to businesses with a credible history.
Disadvantages
The biggest block to buying a small business outright is the initial purchasing cost. Purchasing an existing business is less risky than starting your own, as the present owner of a thriving business has already taken all the risks of startup. It always costs more to buy a winner than to play the lottery!.
Other possible drawbacks – hidden problems with the business or uncollected revenue, factored in as assets at the time of the sale, but turns out to be un-collectable. Analogy: before drilling for oil – hire a good geologist!
Choosing a Business
Finding a thriving business at a reasonable sale price can be a daunting task, as some business owners invest their emotional assessment of their business and over-value it. If that can’t be overcome, there are plenty of other opportunities. Read More »
Advantages
Among the many favorable aspects to buying an existing business is the drastic reduction in startup costs. In addition, cash flow may be immediate because of existing inventory and receivables. Other obvious advantages include continued customer loyalty and the ease of obtaining financing for future, unforeseen needs.
Purchase Research
Before being locked into a deal, examine evey aspect of what you are signing for.. Use of qualified professionals like a Business Broker, an Accountant and an Attorney are essential to insure a successful transaction.
Why is The Present Owner Selling?
Once you’ve found a business that you would like to buy, it’s important to conduct a hard, objective investigation. Look into every aspect of the business, verifying whether the owner’s stated reasons for selling are legitimate; double check every detail for accuracy. Why the seller is selling is an important question – get the answer!
Professional Help
A qualified attorney should be enlisted to help review the legal and organizational documents of the business you are planning to purchase. An accountant can help do a proper evaluation of the financial condition of the business.
Letter of Intent
A “letter of intent” will create a non-binding offer to buy the business and is usually required by the seller to divulge sensitive data about his business. It should, ideally, outline the asking price and any stipulations for the sale of his business. The letter should make it clear that either party may amend terms or back out of the sale for any reason.
Confidentiality Agreement
Routinely demanded by the business seller to assure you won’t publicly disclose details of the sale. This assures continuity of operations up to closing time. This benefits the buyer in the long run by retaining employees and customer/client base.
Contracts and Leases
It is crucial to know all the prior obligations your new business will be accountable for. Also be aware that you may have to work with the current landlord to assume any existing lease on the business premises or negotiate a new lease. If you acquire an existing lease from another lessee, you may have to pay the previous lessee for the privilege. The cost of acquiring your lease may be amortized over the remaining term of the lease.
Financial Statements
Know the history of the prospect business for at least three to five years prior to the sale. Don’t accept a simple financial review by the business itself. Make sure you have a full audit by a trusted CPA firm.
Tax Returns
Review the business’ tax returns from the past three to five years. This will help you to determine if the business is profitable or not, and whether there is any existing tax liability.
Important Documents
All pertinent business documents should be gone over during an investigation. They include:
- real and personal property documents
- bank accounts
- customer lists
- sales records
- supplier/purchaser list
- contracts
- advertisement materials
- inventory receipts/lists
- organization charts
- payroll, benefits, and employee pension/profit sharing info
- list of employees
- certification by federal, state or local
- list of owners
Sales Agreement
The sales agreement is the key document in buying the business assets or stock of a corporation. It is important to make sure the agreement is accurate and contains all the terms of the purchase. It would be a good idea to have an attorney review this document.The sales agreement should detail everything you envision as part of the sale, including all assets – tangible or virtual. Read More »
The following is a checklist of items that should be addressed in the agreement:
- Names of Seller, Buyer, and Business
- Background information
- Assets being sold/ Liabilities acquired
- Purchase price and Allocation of Assets
- Covenant Not to Compete
- Any adjustments to be made
- The Terms of the Agreement and payment terms
- List of inventory included in the sale
- Compliance with the Bulk Sales laws of the state
- Any representation and warranties of the seller
- Any representation and warranties of the buyer
- Determination as to the access to any business information
- Assurance, before closing, that the business will be run professionally up to closing
- Contingencies
- Possibilities of having the seller continue as a consultant
- Fees, including brokers fees
- Date of closing
Due Diligence
Know the legal aspects of owning a business; includes zoning laws, permits, and the environment.
Licenses and Permits
Most businesses need licenses and permits to operate. The type of license or permit you need depends on your industry and the state in which you are located. Local licensing and requirements for permits will impact remodeling and possible requirements for off-street parking facilities. Read More »
Zoning Requirements
It is essential to know the zoning requirements for the area you intend to operate in. Local zoning requirements can impact the particular business you are intend to operate in a that locale.
Environmental Concerns
If you acquire real estate with the purchase of a business, you need to know the local environmental regulations.
Closing Checklist
It is important during the closing to make sure that you have legal counsel available to review all documentation necessary for the transfer of the business. Make sure you and your attorney review the final points of the sale. Read More »
The following items should be addressed in a closing:
- Adjust Purchase Price — This would take care of prorated items such as rent, utilities, and inventory up to the time of closing.
- Review Documents Required to be Provided by the Seller — These would be a corporate resolution approving the sale, evidence that a corporation is in good standing, or any tax releases that may be been promised by the seller.
- Signing Promissory Note — In some cases, the seller will carry back financing, so have an attorney review any Note documentation.
- Security Agreements — Security agreements are vital if you are financing the purchase of the business. They may be used as collateral in your business loan.
- UCC Financing Statements — documents recorded with the Secretary of State in your new business locale.These documents are required when financing your new business.
- Lease — If you have agreed to assume an existing lease, you will be required to execute the assumption. Be sure to get the landlord’s “concurrence to assumption” of the business lease – otherwise you risk negotiating a new lease instead of “assuming” the existing lease.
- Vehicles — If the purchase includes vehicles, you may have to execute the transfer documents for the vehicles. Contact the local Department of Motor Vehicles for transfer details and requirements.
- Bill of Sale — The bill of sale will be proof of the sale of the business and will transfer the ownership of the other tangible business assets not specifically transferred on their own.
- Patents,Trademarks, & Copyrights — you need to be sure you have obtained the proper legal rights to the product or service you are becoming engaged in.
- Franchise — May have to execute franchise documents if the purchase of the business was a franchise.
- Closing or “Settlement Sheet” — This a list of all the financial details of the transaction. A complete, professional, business valuation of all assets – tangible and virtual – should be factored into the deal so that no “surprises” should magically arise.
- Covenant Not to Compete — It is a good idea to have the seller execute this agreement. This will guarantee the previous owner won’t set up shop across the street, after the sale – and take his customer base with him. Without a non-compete agreement, it happens every day!
- Consultation/Employment Agreement — If the seller has agreed to remain on for an amount of time, this documentation would be necessary.
- Complete IRS Form 8594 (PDF file), Asset Acquisition Statement — This form outlines the purchase and the assets included. It can be a factor in your upcoming tax return.
Get IRS PDF Form 8594 » - Bulk Sale Laws — Make sure that all bulk sale laws have been complied with in the transfer of the business assets.
