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Buying a Business? Here are 4 Common Mistakes to Avoid

Posted by Eric D. Anderson | Sep 27, 2019

Buying a business is an exciting decision, but one small oversight can lead to financial turmoil and legal problems. This is why it is essential to consult a commercial lawyer before signing the offer.

Business devices and documents at the workplace, unrecognized businesspeople sharing the ideas on the background

Business devices and documents at the workplace, unrecognized businesspeople sharing the ideas on the background

Local, state and federal laws will determine the administrative requirements of purchasing a business. Although every business acquisition is unique, there are four mistakes that are particularly common:

  • Choosing the wrong business structure;
  • Not investigating the business;
  • Not outlining the terms of the purchase in detail;
  • And failing to consider logistics problems.

If you are planning to buy a business in California, contact Eric D. Anderson Law, LTD. A Redlands business attorney can represent your interests and help you avoid critical mistakes. Call 909-283-5494 today to schedule a consultation.

Until then, read on to learn how to avoid four common mistakes when purchasing a business:

  1. Choosing the wrong business structure.

Choosing your structure is one of the first steps in the process of purchasing a business. There are several structures you can consider including S-Corporation, C-Corporation, limited liability company and others. Your commercial lawyer can help you identify the structure that best complements your business.

2. Not investigating the business.

Whether you are purchasing a business through a broker or directly from the owner, it is critical that you conduct a thorough investigation. Find out if the seller actually owns the business. Is another person on the title or lien of the business or its assets?

Perform a Uniform Commercial Code (UCC) search. This will tell you if the business has the proper licensing, and if those licenses are transferrable.

Other questions you should answer include:

  • Has there been a lawsuit against the company?
  • Has the business been cited by a government agency?
  • Is the business' equipment covered by warranties?
  • Will there be any compliance issues with government agencies?
  • Are the company's accounting records accurate?

3. Not outlining the terms of the deal in detail.

Before signing the offer, you must know exactly what you are getting. There should be a clear list of what is being transferred to you in the business's sales agreement. It should include:

  • Leases;
  • Inventory;
  • Service agreements;
  • Intellectual property;
  • Trade names;
  • Patents;
  • Equipment;
  • Trademarks;
  • Business plans;
  • Licenses;
  • And accounts receivable.

4. Failing to Consider Logistics Problems

How exactly will the transfer take place? Purchasing a business comes with a multitude of logistics considerations. Here are a few questions to answer before signing an offer:

  • How will the seller transfer utilities?
  • Will the buyer have to create new bank accounts?
  • Is there a landlord? Does he or she approve the transfer of the lease?

Every business purchase is unique. Although these four mistakes apply to many business acquisitions, it is important that you understand exactly how local, state and federal laws will affect your particular transaction. This is where a business attorney may be able to help.

If you are buying a business in California, contact a commercial lawyer who will help you perform due diligence and avoid legal snags. Schedule a consultation today by calling 909-283-5494.

About the Author

Eric D. Anderson

Eric Anderson: Civil Trial lawyer, Criminal Defense Lawyer, Sin Lawyer

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