I recently was asked to review a business for the purpose of either getting out of their franchise or negotiating with the franchisor about a possible modification to the business.
As Momma used to say “get your money up front!”
A client had purchased a restaurant by buying the LLC from the previous owner. Well, most of it, anyway. For some reason, the client only purchased 95% of the outstanding membership interests of the LLC, not the whole 100%. I’m still not certain what the rationale behind that was. What I am certain about is that this deal was a train wreck, and the client is doing everything in their power to make it worse.
If you are going to buy an existing business, your due diligence should include review of ALL pertinent documents, including:
- franchise agreement
- vendor contracts
- tax returns
- bank statements
- financial statements
It is always safer for a business purchaser to buy the assets of a pre-existing business rather than the stock or membership interests of the company, so that there are no hidden surprises. However, that may not always be possible.
If you are faced with purchasing an existing business, be certain that you have the appropriate professional review documents and financials before you sign the purchase agreement, whether the professional is a lawyer, qualified business intermediary or accountant. The fortune you save just might be yours.