Here are some flags to watch for when buying a business. Engaging in a business transaction in Arizona is an exciting time, but only if you are adequately prepared for the challenges you might face in a traditional purchase. Buying a business is certainly not for the faint of heart. There are many different things that you need to watch out for so that you can protect your own interests now and well into the future. Here are the major red flags to watch for when buying a business in Arizona.
Recent Developments with the Company
Make sure you do your due diligence and ensure whether or not any future or recent developments with the company have been in the works. For example, the owner might decide to sell because of recent competition that has come into the area. This can be a significant problem for you if you are relying only on past data to buy the business. You need to be able to evaluate all the information in front of you before making the decision to buy any business.
A Dishonest Owner
While this one should go without saying, no owner will openly present themselves as being dishonest. You need to be aware of the discretionary income. If this amount is declining, this could be problematic even if the owner otherwise indicates that the revenue might remain consistent with the company. Also look for clauses in the agreement that says whether the information the owner is reliable. Clauses that say “Buyer has been given the opportunity to verify all statements made by Seller and to investigate the accuracy of any documents provided to Buyer by Seller” or words to that effect are an attempt to back away from the information the seller provided to the buyer investigate the purchase.
Failing or Poor Equipment
If you have to spend a lot of money and time in getting all new equipment or furniture for the company, this can be significantly damaging to you or the company’s profitability. Having to replace these items as an out of pocket expense can be a major hit, especially if you need to do so immediately. Make sure you get the chance to inspect equipment and get a sense from workers or repair specialists whether or not the equipment is reliable.
Being Out of Date with Taxes
It is critical that you review the business’s tax returns as well. Don’t look at just checks and balances for the company’s internal financial records. You need to be sure that the company has been on top of paying their taxes. If they have not, you may be responsible for bringing any outstanding debts. And make sure that you have verified all of this information as accurate before you engage in a sale. Consulting with an Arizona business attorney can be significantly helpful for avoiding challenges associated with buying a new business.
This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice regarding Flags to Watch for When Buying a Business, or any other litigation issues, please feel free to contact us at 480.461.5300, log on to udallshumway.com, or contact an attorney in your area. Udall Shumway PLC is located in Mesa, Arizona and is a full service law firm. We assist Individuals, families, businesses, schools and municipalities in Mesa and the Phoenix/East Valley.
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