Mergers & Acquisitions

Buying a Business

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Buying a Business

Note: The information in this article applies only if the buyer of your business is likely to be an individual or small competitor. It does not apply if the likely buyer is a mid- to large-sized competitor, another company, or a financial buyer, such as a private equity group. These buyers often pay cash or put down up to 90% cash at [glossary-ignore]closing[/glossary-ignore]. Your business must get pre-qualified for financing because your business must produce enough cash flow to cover the monthly loan payments. Loans are pre-approved based on the cash flow available to support the debt service. The cash...

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You will not be held personally responsible for a corporation’s debts. A corporation is considered a separate legal entity from its shareholders. Hence, the debts of the corporation cannot be charged to the corporation’s individual shareholders. However, your investment in the corporation -- the cash or property that you transfer to the corporation as payment for the 49% share -- may be used to pay the debt. Before you invest in any corporation, it’s important to understand the specifics of the corporation’s debt and its overall financial and legal condition. The corporation’s board has the power to decide how or...

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The most important thing to take into consideration when buying a business is whether the business is truly a good fit for you and whether it matches your skillset. When evaluating a business, it’s just as important to assess whether the business is a good fit for you as it is to evaluate the numbers. If you buy a highly profitable business with a lot of opportunity but you aren’t passionate about the business, it’s unlikely you will be wildly successful. The opposite is also true -- the more passionate you are about a business, the more likely you will...

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Yes, this is absolutely true. Most acquisitions fail. Data is scarce on the success rate of acquisitions -- approximately 70% to 90% of acquisitions fail to meet expectations. Most acquisitions destroy value for the acquirer. But this is missing the point. The real question is not about the “success rate.” The question is about the alternatives. What are the alternatives to business acquisitions? How does growth by acquisition compare to these alternatives? The alternative to growth by acquisition is internal or organic growth. What is the failure rate of organic growth? For example, what percentage of Google's new products reach...

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Even a document labeled “letter of intent” (LOI) may be enforced by a court of law as a binding, enforceable agreement if the court determines that the parties intended the document in question to be a binding agreement at the time it is signed. Are You Kidding Me? No. And when a business owner is threatened with the potential loss of a company as a result of an adverse court ruling, they do not view the matter as a joke. First and foremost, business owners thinking about selling a business -- and prospective buyers interested in purchasing a business --...

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