Before buying an existing business, the buyer must evaluate its worth. There are many different factors which should be considered prior to purchasing a business. Some examples may include: revenue, profits, tangible and intangible assets, and conversely, debt, judgments, liabilities, environmental costs, and zoning laws. There are many different methods for evaluating a business, such as the capitalized earning approach, the excess earning method, and the cash flow method. After a buyer evaluates the business, he or she can determine what they are willing to pay.
The buyer’s desired price is often manifested in a letter of intent, which demonstrates the buyer’s serious interest in purchasing the business. This non-binding document establishes the terms of the negotiation over a contract for the sale of the business, which includes an agreed upon price between the buyer and seller, among other terms. Once the buyer and seller have agreed upon a general idea for the terms of the sale, the next step is negotiating the contract of sale – the most important part of the transaction.
This contract formalizes the terms of the transaction and all the terms the Parties will have to abide by. After the contract is negotiated, the parties must conduct the due diligence process. This means conducting physical and environmental inspections on the property to ensure there are no issues and examining the business’s financial records, liabilities, and searches on any liens and judgments the business may have, which is usually done by a title company.
If you are thinking about buying or even opening a business in New Jersey, contact us at 908-424-1011.