Starting a business requires more than an idea. Starting a business involves planning, making key financial decisions and completing a series of legal activities. As you create a business plan you will be especially interested in marketing and building the right team. These 10.5 easy steps can help you plan, prepare and manage your business. If you click on the links, you will find more information from the Small Business Administration.
Starting a business? Have you read this book yet? "An Interpreneur's Journey: The Birth of a 'New Economy' Business" authored by Tom Eckmann. The 'Interpreneur' is an Internet Entrepreneur. You are unable to start a business today without understanding how to integrate the Internet into your business plan.
About the book:
Did you ever think about starting your own business? Bill Partridge does, especially when he’s laid off by the company where he’s worked for 14 years. Facing a long unemployment, he decides to go into business for himself. He starts a contracting company selling radiant heating and soon encounters the "two-by-four rule" - everything costs twice as much and takes four times longer than expected. He’s running out of time and money when he makes an important discovery — he can sell his systems over the Internet. He re-invents his business and finds success selling to customers all over the country.
During the evolution of your business, there can be confusion about the trade name and the the process of business name registration. What is the difference between a trademark and tradename? Is there legal branding protection with a trade name? Can a trade name be the same as your trademark?
Buying a business is often perceived as a less risky option than starting your own business from scratch; however, without proper research, due diligence, and consideration for the key legal steps and potential liabilities involved – it can be a risky path to venture down.
For example, has the previous owner been in compliance with tax law? Is the business adequately insured? What are the terms of the seller’s commercial lease?
These are just a few of the questions that you need to ask as you pursue the purchase of a business. Follow the points below to learn more about the due diligence and legal aspects involved in buying an existing business.
The Due Diligence Phase - Research the Seller’s Business
The first phase of buying a business involves doing your research and identifying the right business (get more tips on this process in SBA’s tips for Doing Research before You Buy a Business). The second phase involves doing your due diligence, where you really poke your nose into the details of the business!
Areas to consider include:
Note that most sellers will require interested buyers to sign a confidentiality agreement to ensure that you won't use the information about the seller's business for any purpose other than making the decision to buy.
Determine What you are Buying
Businesses are sold either in their entirety (the entity and any stock in that business) or as assets of the business. Asset-based purchases tend to be favorable to small business owners because the obligations and debt of the target business would be left with the seller. This should be backed up by a written agreement stating the terms of the asset acquisition (remember you don’t need to buy all the assets, only what you need.) You should also check whether licenses, business names and other intellectual property are transferable.
Consider Forming a New Legal Entity
Talk to your lawyer about this one, but it may be advisable to create a new entity that will acquire the assets of your target business. As a general precaution, forming a corporation or an LLC to buy a business will minimize your personal risk for the business's past obligations.
Write Up a Letter of Intent
Once you’ve determined what you are buying and any employees, liabilities, etc. that you are taking on, you should draw up a letter of intent. This is a non-binding agreement outlining what is to be done when the buyer and the seller have generally agreed upon the terms of the transaction.
Negotiate Purchase Terms
SBA has compiled detailed information on buying a business and negotiating the purchase. For example, to help you determine the value of the business or assets that you are buying read: Determining the Value of a Business. Next you’ll need to work with a lawyer to draft and sign the sales agreement, you should also push to get it into escrow as soon as possible to protect you from other buyers.
Bringing on Board Employees
Don’t assume that the employees will automatically be transferred to you. This decision can be made during the negotiation phase. However, if you are obligated by the sales agreement to keep employees on but intend to review headcount and employee costs and contributions after the sale, check with your state law regarding worker protection rules and the amount of calendar notice you need to provide. Read up on Employment Law as it pertains to layoffs and severance payments. If you don’t have one already and take on employees you will need to obtain an Employer Identification Number from the IRS.
Additional Resources
Mentorship programs are not advertised on TV, the Internet or radio. Your small business or your soon to be open business has obstacles and you may resort to rubbing a lamp hoping for a Genie to pop out and provide the perfect business advice. Without funds, how can you expect to create a win-win with any business consultant?
You have a strong motivation to start a business or the business you own is not yet successful. You have a vision and your abilities/skills/talents stand out in the marketplace or your product is already in demand. You are strapped for cash because of the crazy economic times and possibly your house has burnt down.
