A good friend of mine recently contacted me about buying a retail business. I wanted to help her as much as possible while still “teaching a man to fish” vs. just giving him a fish. So, I broke down what needed to be done in three bigger steps to make it easy to understand the timeline along with the contacts needed to make this happen. I was joined today by my attorney Jarod Cauzza from Neil-Dymott. He is my Trust Attorney and Business Attorney here in San Diego. Together, we talked about these 3 steps and how to navigate each. Of course, it’s much easier with Jarod leading the charge based on all of his experience.
Listen to today’s complete podcast of the Mr Credit Radio show here:
How to buy a business the right way in 3 steps:
Step 1 – Form an entity for the business. Even if you already have a corporation or LLC, you should have a different one for each business. Not just for tax purposes or accounting either. If you ever want to sell the business, the cleaner it is and the easier to understand, the more valuable it will maintain. In the example we used on the air, my friend Jemma was recommended to form an S-Corporation. Not only would it be best for case-laws and liability, but could also be beneficial to the investors because of how the profits are distributed. For most businesses, we recommend an S-Corp, but for real estate and special circumstances an LLC can make sense.
Step 2 – Create an investor agreement. For most business ideas to execute, they require funds that exceed what’s available by the owner/operator. No problem, just get a few investors and raise the capital you need for your business. However, you’ll need an agreement between the entity you just formed and the investors to outline all the specifics about what they are investing in, how the terms are structured, etc. The good news is, once you get the investor agreement completed, you can officially close the deal with your investors!
Step 3 – Execute the purchase of the business. Of course, you will need to spend time doing your due diligence to make sure you know what deal points to negotiate, what you are getting or acquiring from the current owner. A big question to ask is, are they going to supply the purchase agreement or do you need to create it? Are the equipment leases and real estate leases transferrable? Once you have agreed on terms with the current owner and finely combed through the purchase agreement, it’s time for your dreams to come true! Or, for the work to finally begin… Depends on how you see it 🙂
If you need help with any of this stuff, give me a shout or call my attorney Jarod Cauzza at 619.238.1712 for a free consultation.