• Make sure that you have enough information before you make an offer for a business. If at all possible, you want to look at the books and records of the business, get a good idea of its assets and liabilities, its customers, any long-term commitments to suppliers, customers or employees, and the value of the assets.
• You may have to sign a secrecy or non-competition agreement in order to get the owner to share that information with you.
• If you do find an existing business that seems like a good deal to take over, try to reach a verbal agreement with the owner on the major terms. Then, see your lawyer right away. He or she can help you in more than one way. Specifically, besides offering legal protection, he or she will most likely help you in contract negotiations. He or she will obtain useful supplementary information and data. He or she will give you valuable feedback before you put your signature on what is probably the biggest deal of your life.
• In addition to drafting the contract, your lawyer can review and evaluate documents prepared by the seller's lawyer and ask crucial questions that might not have occurred to you. He or she can represent you at the closing to ensure that all documents are handled correctly and to your advantage.
• Your lawyer can also make you aware of what you need to know about the business. He or she can help you identify documents and records. Perhaps most importantly, he or she can make sure that you don't sign before the other party has put all its cards on the table.
• Finally, your representative can give you feedback. He or she can make positive or critical comments about the chances of your new enterprise. When you don’t have family members with relevant business experience, he or she is the one who can listen patiently and respond with objective advice as you share your hopes, fears and dreams for the future. Running a business can mean making good money. But at the same time, it also means taking a risk. You need someone you can rely on; someone who will warn you before a potential risk turns into a disaster.

Buying The Company v. Buying The Assets
Imagine the following scenario: You have your eyes on Smith & Smith, Inc. It is a small, family-run business which manufactures rubber seals and gaskets. For the most part, the company consists of a workshop (including several machines); raw materials; an inventory of completed gaskets waiting for customers; some office furniture and equipment; and a pick-up and delivery truck. Your initial negotiations indicate that Harold and Howard Smith are willing to sell for about a quarter million dollars.

The issue to be decided is: Should you purchase the corporation itself or only its assets? In the first case, you would purchase all the stock, the shares that are held by the Smiths. In the second case, you would buy only the tangible assets used by the company in its business.

• As a general rule, you are better off with the second option because you get what you see. From a fiscal point of view, you can immediately claim tax deductions for the inventory and other depreciable property.
• If you decide to take over the stock, you may also inherit pending lawsuits against the company and other corporate liabilities. It’s a good thing to have a lawyer take a close look at your specific situation and recommend what you should do.
• Assume it is to your advantage to purchase the assets. Now it's time for a contract. It should be as detailed as possible. Don’t be afraid of being a stickler. List and briefly describe each item:
• equipment or parts thereof;
• vehicles;
• fixtures;
• furniture;
• inventory and raw materials (by number, weight or volume);
• work in progress;
• existing leases;
• rental agreements;
• patents; and
• real estate.
• The list should also clearly indicate to what extent titles are clear, to what extent you would have to take security interests and other handicaps into consideration.
• Consider a list of items you or the seller want excluded from the transaction. This way you prevent disputes in cases where the seller wants to retain more than originally was agreed upon and you can avoid getting stuck with unsalable items or hazardous waste that present disposal problems.
• Make sure you have a written statement indicating who will be liable for the debts of the company at the time of the transaction. If it’s you, make sure you know their full extent. There should be an agreement stating who is entitled to the accounts receivable. Be prudent and realistic. You may have trouble collecting some or all of the money outstanding, especially as a retailer in poorer neighborhoods.
• After you have taken into consideration all these aspects and have negotiated the right purchase price, you should ask for an itemized statement mainly for tax purposes. That looks easy, but it may turn into one of the major battles.
• You want the major share of the total price allocated to those items that give you the fastest recovery of your investment, i.e. allocated to inventory and depreciable assets. The smallest portion should go to items such as trade name or good will. Such items must be amortized over fifteen years and yield only long-term tax benefits.
• For similar reasons, the seller will want exactly the opposite allocation procedures.

Purchase Price Adjustments
The notion of adjustments to the purchase price becomes important if there is a time lag between the time the contract is written and closing. Allow for adjustments in the contract.

• Make provisions for how to handle increases or decreases in inventory. One option might be to stipulate that you will pay up to $50,000 for inventory at closing, based on the seller’s invoice cost. If the actual inventory at closing exceeds this amount, you reserve the option of purchasing the difference, possibly at a discount.
• Other adjustment provisions could include such items as pre-payments for rent or leases; utilities or insurance premiums; license fees and property taxes. Another important factor is salaries/wages. If they are paid at the end of each month retroactively and you take over the business at any other time, the purchase price should be reduced to allow for the fact that you are going to pay salaries for periods when the seller still owned the business.
• Your purchase contract also should indicate when the payment for the company is due and how it will be paid. Try to negotiate and be as creative as you can in your proposals. There are almost no restrictions or limits on the type of terms you can have if the seller consents.
• Some transfers involve seller financing. Obviously, the number of installments and the interest rate are key items for negotiation. There have been cases in which installments were tied to the profit generated during the first five years under new ownership. In those cases, the seller was willing (or forced) to continue to share in the risk of the business.
• Most deals require a deposit when the contract is signed. Pay special attention at this point. Keep the deposit as small as you can and have in writing that it actually applies against the purchase price. Don’t have it treated as a form of fee. In all cases, the deposit should be placed in an escrow account with an-agreed on set of rules for getting it back if, through no fault of yours, the deal is not completed.
• If you stretch your payments over an extended period of time, it's not unreasonable for the seller to retain a security interest in some of the major assets, until payment has been made in full. Corresponding arrangements should be part of the general contract. In such a case, expect limited ownership or usage of major property items.

Contingency Clauses
Before you close the contract, it’s wise to do some additional work on your own.

• Try to find out if all your assumptions and all of the seller's verbal statements were correct.
• To accommodate for unpleasant surprises resulting from this type of investigation, you should have a contingency clause in your contract. It stipulates that the deal depends on certain events and/or conditions such as:
• If you want to move the business, the purchase should depend on actually getting zoning and building permission for the new location;
• If your business success depends on certain political or economic developments overseas, the purchase should depend on the occurrence of those developments;
• If you want to take over a restaurant, the deal should depend on your passing health tests and other possible municipal requirements.
• The deal should depend on your ability to get all the government licenses and permits you need, whether they are new ones or transfers of the present ones.
• Especially when an inventory is subject to rather quick deterioration and natural decay, the contract should depend on a physical examination of the products, showing that they are in the condition that was claimed by the seller. Finally, you may also want to make your transaction contingent on the approval of your banker, lawyer and/or accountant.

The Closing Documents
There are a number of documents you have to watch out for because they formally transfer the business or its assets to you. The number varies depending on the type of financing and other terms spelled out in the contract.