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nutmeg grouser

buying an existing company HELP

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nutmeg grouser

Anyone ever buy an existing  company and have favorable and or bad experiences? I would love your help about the process.

Thanks 

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snapt

Lawyer up with somebody who does this for a living. I nearly got myself into a bad predicament buying a boss out who was hiding tax lien's and other schiesty stuff from me. Lawyer sniffed it out, the money I spent on him saved me god knows how much money and headache down the road. I pulled out of the deal and it became somebody else's problem.

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Don Steese

Don't buy based  on "potential". 

When looking at the numbers, don't overestimate how much and how quickly you'll be able to improve them. In other words, don't let ego alone drive your decision. Be honest with yourself. 

I've bought two existing businesses, however I had been running the one like it were my own for a number of years. I knew that business inside and out. The other was not making any money and I violated my own rule about not buying "potential", BUT I paid so little that if it hadn't worked out it wouldn't have hurt me much. 

Have a good lawyer and accountant go over the books with you. 

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Big Al

What Don said. 

Ask to see an audited income statement.  If they don't have one then you'll want to see the corporate tax returns for the last couple of years.  I was approached last year to sell my business.  They offered 4x ebitda.  I didn't accept.  Too low.  I did some digging and found that the business could get around 8x. You need to do the same.  Find out how the market values a business in that industry. 

If it's a business that has inventory.  Make sure the inventory numbers are accurate and it's saleable.  If possible talk to some customers and competitors to find out how the company is looked on by the market.

Every owner thinks their business is worth more than it is so make sure you negotiate. 

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SelbyLowndes

Unless an existing business has some loss carry forward it's usually best to buy the assets, get an assignment of trade names, good will, and a non-compete from former owners rather than buy the corporation or LLC, or other business organization itself.  Use a lawyer...SelbyLowndes

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Greg Hartman

I've been a merger and acquisition/complex tax lawyer for way too many years.  If this is anything more significant than buying a lawn-mowing business or the like, a few pieces of critical advice:

 

1.  Before doing anything, go hire a lawyer who specializes in buying and selling businesses and has a post-doc tax degree.  There is a LOT to know about this - many, many traps for the unwary.  Lots of lawyers may claim to be competent in this areas, but few are.    Find one who IS!

 

2.  At the very same time, go hire a CPA who has expertise in M&A work, business valuation and tax.  Every bit as necessary as a good lawyer.  If you don't know such a person, your lawyer will.

 

3.  Do NOT work through a business broker!  Almost no businesses worthy of purchase are represented by brokers.  Brokers will try to give you the impression that they know what they are doing and that you can trust them - DO NOT!

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FlyChamps

I'm a CPA and have been involved with both buyers and sellers of businesses.

 

1. I agree with SelbyLowndes that you usually buy the assets, not the entity. In fact, I've never had a case that I recommended buying the entity and the attorney has always agreed.  If you buy the entity there are significant limitations on the new owners deducting the Net Operating Losses created by the old owners and if a September 2019 IRS Proposed Regulation becomes final the limitation will be even more severe.

 

2. Re-read Greg Hartman's post above until you have it committed to memory - especially item 1.  After 45 years in the CPA business I have seen disasters for those who didn't have a qualified attorney when they signed the contract to buy a business.

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GB Jack
On 3/13/2020 at 10:26 PM, nutmeg grouser said:

Anyone ever buy an existing  company and have favorable and or bad experiences? I would love your help about the process.

Thanks 

I think I’d wait a few months . We’re in history in 2020

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studdog

I was involved in both sides of Mergers and Acquisitions for many transactions.  Good advice above.  I would add:  Don't buy a business that you do not have first hand experience in.  If your not an expert in the new business It will take you years and lots of money to gain that expertise.

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nutmeg grouser

This board id the best on so many levels. Great advise from all. I really appreciate it.

 

Thanks,

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Zoli 16ga.
On 3/14/2020 at 8:54 AM, Greg Hartman said:

I've been a merger and acquisition/complex tax lawyer for way too many years.  If this is anything more significant than buying a lawn-mowing business or the like, a few pieces of critical advice:

 

1.  Before doing anything, go hire a lawyer who specializes in buying and selling businesses and has a post-doc tax degree.  There is a LOT to know about this - many, many traps for the unwary.  Lots of lawyers may claim to be competent in this areas, but few are.    Find one who IS!

 

2.  At the very same time, go hire a CPA who has expertise in M&A work, business valuation and tax.  Every bit as necessary as a good lawyer.  If you don't know such a person, your lawyer will.

 

3.  Do NOT work through a business broker!  Almost no businesses worthy of purchase are represented by brokers.  Brokers will try to give you the impression that they know what they are doing and that you can trust them - DO NOT!

Didn't even read what he wrote...but I'm sure what he said.

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R Patten

Posts from attorneys and CPAs above, listen to them. As a CPA,  over 30 years I have been seeing some of the worst possible purchases from folks not using people with the talent to guide you through this. 

 

 

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WI Outdoor Nut
On ‎3‎/‎15‎/‎2020 at 5:46 AM, GB Jack said:

I think I’d wait a few months . We’re in history in 2020

 

I consulted with a buddy who just bought his 3rd business, and closed about 6 weeks ago.  It was a boat dealership.  With what is going on now, and the next three months by far the critical months, he knows he is screwed his 1st year.  He will be okay if this is not repeated next year.  He had 3 people back out on boats in 2 days.  I did not talk to him in the last 2 days, so I am sure there are more. 

 

Like GB Jack said, we are in unknown waters here.  What this looks like in 2 weeks, much less 2 months or a year is anyone's guess.  There will be winners and losers with what is going on, but I know a lot of business will go under. 

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Rogue Hunter

The local J.C.Pennys and Macy's closed for the time being. I wonder if they are positioning themselves for bailout money?

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SelbyLowndes

Be sure to get someone to check the books and do the numbers on valuation of any business you consider buying.  Lawyers are usually terrible at math; the only fraction they understand is 33 1/3% of other people's pain and suffering...SelbyLowndes

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