The Complete Guide to Buying a Business

Web Resources......Page 0
Table of Contents......Page 9
Introduction: Your Companion for Buying a Business......Page 17
Is This Book for You?......Page 18
Will You Need to Hire Lawyers, Accountants, or Other Professionals?......Page 20
Part 1: Overview of the Process......Page 21
1. Thinking About Buying a Business......Page 23
Which Kind of Buyer Are You?......Page 25
Three Ways to Become a Business Owner......Page 27
The Basics of Buying a Business......Page 32
Key Steps in Buying a Business......Page 34
2. The Key Legal Issues in Buying a Business......Page 41
Understand the Differences Between Buying a Business Entity and Buying Just Its Assets......Page 42
Consider Forming a Corporation or LLC to Buy the Business......Page 45
Be Clear on What You’ll Buy and What the Seller Will Keep......Page 46
Pay Special Attention to the Transfer of Intellectual Property......Page 47
Know the Legal Consequences of Not Making Installment Payments on Time......Page 48
Protect Yourself From Competition by the Seller......Page 50
Limit Your Legal Liability for Past Obligations of the Business......Page 51
Comply With State and Local Laws That May Affect Your Purchase......Page 54
3. Tax-Saving Strategies......Page 57
Understanding Business Write-Offs......Page 58
Buying Assets vs. Buying the Entity......Page 62
Allocating the Purchase Price in an Asset Sale......Page 64
Writing Off Purchase-Related Expenses......Page 69
4. Finding the Right Business for You......Page 73
Before You Begin......Page 74
Attractive Businesses May Be Nearer Than You Think......Page 75
You May Be a Strategic Buyer......Page 78
Finding a Business Through Advertising—Yours and Theirs......Page 83
What Sellers Want to Know About You......Page 87
5. What’s the Business Worth?......Page 91
There’s No Universal Pricing Formula: Many Factors Affect Price......Page 92
Sales of Comparable Businesses......Page 94
The Asset-Based Approach......Page 95
The Income Valuation Approach......Page 96
Industry Formulas and Rules of Thumb......Page 98
How Appraisers and Other Experts Can Help You Decide on a Fair Price......Page 99
Putting Together All the Information......Page 101
6. Working With Lawyers, Accountants, and Brokers......Page 103
Lawyers......Page 105
Accountants......Page 109
Business Brokers......Page 111
Part 2: Getting Ready to Buy......Page 113
7. Financing Your Purchase......Page 115
Installment Purchase......Page 116
How Sellers Try to Protect Themselves in an Installment Sale......Page 119
Show Me the Money: Where You Can Get Funds for a Lump Sum Purchase or Hefty Down Payment......Page 122
The Difference Between Loans and Equity Investments......Page 126
8. Structuring Your Purchase......Page 129
Asset Sale vs. Entity Sale......Page 131
The Seller’s Future Role......Page 137
Restrictions on the Seller: Noncompete Agreements......Page 141
The Future of Key Employees......Page 142
9. The Investigation Stage: How Buyers and Sellers Check Each Other Out......Page 145
Your Investigation of the Seller’s Business......Page 147
Paperwork the Seller Should Provide......Page 149
The Role of Confidentiality Agreements......Page 163
Information to Garner From Other Sources......Page 166
Why and How the Seller May Check You Out......Page 168
10. Drafting a Letter of Intent......Page 175
Why Use a Letter of Intent......Page 176
What to Put in Your Letter of Intent......Page 177
Why You Should Only Sign a Nonbinding Letter of Intent......Page 179
Format for a Letter of Intent......Page 180
Part 3: Preparing the Sales Agreement......Page 187
11. Preparing the Sales Agreement and Other Legal Documents......Page 189
Overview of Your Sales Agreement......Page 190
Related Legal Documents......Page 195
Well-Drafted Documents Are Crucial......Page 196
Preparing Your Sales Agreement and Related Legal Documents......Page 197
How to Prepare Attachments to Your Sale Agreement......Page 199
Steps in Finalizing Your Sales Agreement and Other Documents......Page 200
Amending Your Sales Agreement......Page 201
12. Who’s Selling, Who’s Buying—And What Is Being Purchased......Page 205
Naming the Parties......Page 206
Identifying the Business and What You’re Buying in an Asset Sale......Page 210
Identifying the Business and What You’re Buying in an Entity Sale......Page 215
13. The Sales Price and Terms of Payment......Page 217
Sale Price: Asset Sale......Page 218
Inventory: Asset Sale......Page 223
Dealing With the Purchase of Accounts Receivable: Asset Sale......Page 225
Sale Price: Entity Sale......Page 227
Deposit......Page 228
Payment at Closing......Page 229
Promissory Note......Page 231
Security for Future Payment: Asset Sale......Page 232
Security for Future Payment: Entity Sale......Page 234
14. Dealing With Liabilities and Representations......Page 235
Liabilities in an Asset Sale......Page 237
Liabilities in an Entity Sale......Page 241
Representations: What They Are and Why They Matter......Page 242
Seller’s Representations......Page 243
Buyer’s Representations......Page 248
15. Payment for Noncompete Agreements and Consultant Deals......Page 251
Seller’s Agreement Not to Compete With the Business After the Sale......Page 252
Seller’s Agreement to Work for Your Business After the Sale......Page 255
Current Employees of the Business You Are Buying......Page 256
16. Other Important Legal Language for the Sales Agreement......Page 257
Contingency Clause......Page 258
Closing Arrangements......Page 259
Dispute Resolution Clause......Page 261
Technical Contract Clauses......Page 264
Additional Optional Clauses......Page 268
17. Signatures on a Sales Agreement......Page 269
Required Signatures for Sole Proprietors on a Sales Agreement......Page 270
Required Signatures for an Entity on a Sales Agreement......Page 271
A Spouse’s Signature on the Sales Agreement......Page 273
Typical Formats for Signing a Sales Agreement......Page 275
Accepting Personal Responsibility for Commitments in a Sales Agreement......Page 279
Signing the Sales Agreement......Page 281
Part 4: Preparing the Promissory Note and Other Sales Documents......Page 283
18. Promissory Notes and Other Installment Payment Documents......Page 285
The Promissory Note......Page 286
The Security Agreement......Page 296
Escrow Agreement for Entity Sale......Page 306
19. Bill of Sale, Lease Assignment, and Other Documents for Transferring the Business......Page 315
Bill of Sale: Asset Sale......Page 317
Bulk Sales Compliance......Page 322
Assignments in an Asset Sale......Page 326
Transferring an Entity......Page 335
Assignments in an Entity Sale......Page 338
Your Entity’s Approval of a Business Purchase......Page 339
20. Documents for Noncompete and Future Work Commitments......Page 343
Covenant Not to Compete......Page 344
Contract for Employment......Page 350
Contract for an Independent Contractor......Page 353
Part 5: Closing the Deal......Page 359
21. Preparing for a Smooth Closing......Page 361
Where and When to Hold the Closing and Who Should Attend......Page 362
Documents for Transferring Assets......Page 364
Handling Last-Minute Problems......Page 366
Looking Ahead......Page 368
22. Running a Small Business: Some Legal and Tax Basics......Page 369
Entity Concerns......Page 370
Safe Business Practices for Your Corporation or LLC......Page 373
Tax Basics......Page 375
Negotiating a Favorable Lease......Page 378
The Road to Success......Page 383
A.How to Use the CD-ROM......Page 385
Installing the Form Files Onto Your Computer......Page 386
Using the Word Processing Files to Create Documents......Page 387
Using Government Forms......Page 389
List of Forms on the CD-ROM......Page 391
B. Sample Sales Agreements......Page 393
Sample #1: Asset Sale of a Restaurant by One Sole Proprietor to Another......Page 394
Sample #2: Entity Sale of a Bookstore by the Two Shareholders to an Individual......Page 402
Sample #3: Asset Sale of a Landscaping Business by a Single-Owner LLC to a Partnership......Page 409
C. Forms......Page 419
IRS Form 8594, Asset Acquisition Statement and Instructions......Page 421
UCC Financing Statement and Addendum......Page 426
Index......Page 431