The idea of buying a business is one of the most exciting thoughts in a person’s life. Usually that thought is aligned with other life goals, such as financial freedom, community status, control over life, or following a passion rather than merely having a job. We help many people as they attempt to buy a business.
Often, we see situations where people are looking to buy a business from a family member. While this can be a great opportunity for you and the family member, it can also create bad feelings quickly if things are not handled appropriately. That is why we are here to help!
Here are some common pitfalls that people fall into when buying a business from a family member.
Do not assume that your family member is a saint.
Running a business is complicated, and there are several gray areas. Just because you have known Aunt Margaret for years, that does not mean that she has run her business the same way you would have. For example, Aunt Margaret may have written off some personal expenses as business expenses for tax purposes. Putting idealistic images on our family members when buying a business from them can do one of two things: 1) Make it so that you do not pay close enough attention to the details of the business before buying it, or 2) Make you sorely disappointed when you find out that no one is a saint. Approach the situation as if you are an outsider who does not know your family member. This will help you take the proper precautions when buying the business.
Do not rely on a handshake deal.
If you were buying a house from your family member, you would not be okay with only a handshake deal. Purchasing a business is no different. There are many things that need to be covered in a proper purchase agreement, such as form of payment, listing assets, separating taxes liabilities, etc. That is where we can help.
Do not forget about the money.
Money is the primary value exchanged for the purchase of a business. Even outside the purchase price, there are many other money issues to deal with, such as: 1) who gets the money left in the bank account on the purchase date, 2) who gets the money that comes to the business after the purchase date for work performed before the purchase date, or 3) who pays the tax obligations for things straddling the purchase date, etc.
Do not forget to see what other obligations the business has.
Sometimes buyers think that the business is simply the thing that the company does. However, the business includes all of the things required to make it possible for the business to do what it does. For example, many companies have a commercial lease with a landlord that will have to be assumed by you as the new owner. Are you aware of what that lease will require from you? It is important to look through these underlying issues when determining if it is proper to buy the business.
Do not expect both people in the deal to be happy.
Business deals require negotiation and compromise. Both you and your family member will have to give up something that you would have liked to have. Both sides may feel like they have given more to a deal than the other side. If a business purchase is done right, these feelings will only be momentary. If the business purchase is done incorrectly, then these feelings could last forever.
Contact Counxel Legal Firm
We would love to help you with purchasing a business! Contact us at (480) 744-6621 or at request@counxel.com. Don’t forget to check out the good things that others are saying about the services they received from Timothy Coons on Google.
This article is intended for informational purposes only and does not constitute legal advice for your specific situation. Use of and access to this article does not create an attorney-client relationship between you and Counxel Legal Firm. Please contact request@counxel.com or (480) 744-6621 to request specific information for your situation.
*Conveniently located off the 101 Freeway and the US 60 in the middle of Phoenix, Scottsdale, Tempe, Chandler, Gilbert, Mesa, and Queen Creek!
