There are many reasons it makes good sense to purchase an existing business in Colorado. It can mean that you will already have an established customer base, a smooth running operation, employees in place and leases already arranged.
However, you need to go into the purchase with your eyes wide-open. Is the owner selling the business because it is actually failing? Are business conditions about to change and he or she wants to get out now? Is there hidden debt?
The very best situation in which to buy is when a successful owner of a longstanding well performing business is about to retire and needs to offload the business.
There are many things that must be disclosed and sorted out with your financial and legal associates before you assume the helm of an existing enterprise. Early on, you need to find out:
- How did the owner calculate the value of the business?
- What is the least the owner is willing to accept to sell the business?
- Are there a board of directors, shareholders or government entities that need to approve the sale?
- Will “essential” employees be staying on with the business?
With the help of your financial and legal team, you’ll complete a thorough due diligence process. Through this process, every financial and legal rock is overturned and you get a true, bare-bones picture of the business you are interested in buying.
You will basically want your investigations to cover four key areas:
- Your seller’s history and true reasons for wanting to sell
- Legal issues that potentially could impact the business – Is a lawsuit brewing that could prove costly and change the financial future of the business
- The complete financial picture of the business including tax records, certified financial records, contracts, etc.
- The business outlook for the business’ future – for example, is a big mall planned for across the street that could cannibalize the business.
Ignore claims of unreported income not showing up on certified financial records. In fact, don’t believe anything that cannot be documented through the due diligence process.
When you complete the due diligence process, if you still have a favorable impression of the business opportunity, have your attorney draft a letter of intent to purchase. This is a nonbinding document that outlines what you plan to buy and any employees and liabilities you plan to take on. Work with your attorney to understand Colorado laws regarding your right to lay off employees and any severance required.
Working with your Colorado business attorney, you will negotiate the purchase terms and draft a sales agreement.
Your sale can be one of the following types:
- An asset purchase. In this case, you buy some or all of the business’s assets and do not take on the seller’s debts or other liabilities.
- A stock purchase. You purchase all or most of the business’s stock and take
on the business’s debts and other obligations.
- A merger. In this situation the two companies join together to form a new company. This arrangement usually results in a tax-free stock swap.
At this point, if negotiations go smoothly, you are ready to close on the business and begin overseeing your new enterprise.
The importance of selecting an experienced and knowledgeable business lawyer to guide you through this process cannot be overstated. If you are ready to buy a business in Colorado, contact the highly skilled attorneys at Robinson & Henry in Denver, Castle Rock and Colorado Springs. They have seen many business purchases through to a satisfactory conclusion for all parties. Call 303-688-0944 for a free initial assessment to help move you toward achieving your goal.