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Final Steps in Purchasing a Business
Find an Attorney
Once you have agreed in principal to the general outline of a deal you need to get an attorney to draft your Letter of Intent for any but the simplest transactions. (For the simplest transactions you can purchase forms on the internet). Make sure that the attorney you choose has experience in buy-sell transactions.
Negotiate
There may be small points left to negotiate. These may include which state's law governs the transaction, the exact wording of each provision in the LOI, and the date and time of closing.
Write LOI
Your lawyer will draft the letter of intent, or if it's a straightforward deal you may use one purchased on the internet. There are a number of things that go into a letter of intent. For example, the letter of intent should say that the owner must operate the business as usual until closing.
Once the Letter of Intent Has Been Signed
Usually, the offer contains a provision that when both buyer and seller have signed the letter of intent a small deposit (usually between 1% and 5% of the purchase price) be placed in an escrow account with either the buyer's or sellers attorney. Generally, once the LOI is signed by both parties the seller is required to take the company off of the market and cease negotiations with all other potential buyers.
The deposit, or earnest money, is almost always refundable. You should reserve the right to decide not to proceed with the deal during the due diligence period, at your sole discretion, and receive the earnest money back. The earnest money is just a way of letting the seller know that your intentions are serious, so that the seller will be willing to tie up the company for the period it takes you to determine that the business is indeed as it was represented.
Due Diligence
During Due Diligence, you need to verify that everything that you have been told about the business is true. You also need to make sure that you uncover any substantial problems that will affect the ongoing health of the business. You must read all of the information that is provided by the seller, since if a problem was disclosed, even in the middle of a lengthy document, then the seller has fulfilled his obligation to provide the information and can not later be accused of deceit.
Inventory Value
Either immediately before or after closing you need to determine the actual value of inventory if it is a material component of the deal. You must be prepared to take a physical inventory.
Closing
At closing, you will need to sign a variety of documents. Make sure to review the documents with your attorney before the closing so that you understand everything that you are signing. Once you close the business is yours.
In the event that something goes wrong at closing, for example a wire transfer for a loan that you are taking to finance a portion of the purchase does not come through, your attorney may be able to "close in escrow". In this rare scenario, you close pending the completion of the wire transfer on the following business day.
Post Closing
After closing it is important to meet and reassure the employees of the company and the customers. Unless the company that you purchased is bleeding money and in desperate need of rescue, make changes slowly. Try to learn from the previous owner and the existing employees. Often, there are reasons that things are done a certain way that are not apparent without a great deal of experience. Ask questions, listen carefully to the answers, and give yourself time to think before making any big adjustments.