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Buying a Business: Evaluation of the Benefits and Risks of the Operation

There is no doubt that for some people, buying an existing business is more advantageous than starting a business from scratch. And not the least reason for this decision lies in the fact that few people want to start from scratch and therefore prefers that someone had made a great part of the original work, for example, created a customer base, find employees, spent primary marketing work, etc.. Of course, in this decision are the logic, but this does not negate the need to examine a business that is offered for purchase.

One of the first recommendation, which should give a person who wants to buy a business, is that priority can be a business that at least as it related to the previous buyer experience, whether it is an independent business experience, the experience of the hired employee, specialized education, other professional skills, or just a hobby. After buying a business, about which a buyer does not know a lot, he carries huge risks, even if such a business at first glance looks attractive. This are a professional risks associated with lack of knowledge of the market and the risk of overpaying for the purchase. If the purchase of a business intended to try his hand of something new then a factor of experience in this field is not critical.

After deciding on what a buyer of business would like to do, becomes a question where seek suitable business to buy. In some cases, for example, if the buyer wants buy a function restaurant or cafe, the most reasonable is to visit interesting places, to communicate with their owners and find out if the current owners are going to sell it. You can ask business partners and friends of potential customers about similar entities that can be selling. You can also search for objects through online advertising, real estate brokers, business brokers.

It is equally important before buying a business to receive about him all the information, which is only possible: banking documents, financial reports, balance sheets, registers of accounts payable and receivable, personnel records, including benefits, and employment contracts, to explore all the major contract, to obtain information about all disputes and litigation.You can, of course, process the information on their own, but you can draw independent lawyers, because they are due to the specifics of their profession can be found in the received information more “pitfalls”. Do not be too shy and afraid to ask questions about a business seller or ashamed to request information and documents, as the buyer should understand that it gets. Any attempt to conceal information or documents is blatant lie in the submitted documents and other questionable points should make a buyer seriously think about the need of a deal.

If a buyer did not give up of a deal after learning of the purchased business transaction you can move on to a price issue. You can hire an appraiser, you can rely of your intuition, but the first option is preferable. It is important to clearly understand what assets will be bought: a task, an equipment, a right to the trademark or patents, etc.. Will be rational to buy a business in installments with a certain down payment, with the ability to specify business markdown if the seller suddenly concealed significant information about selling a business or property.

After that the parties of a transaction have decided with terms with which they agree, should enter into a contract of sale in writing. It is advisable to re-consult with a lawyer, perhaps, a new look at the facts of the case will reveal previously unnoticed aspects.

We should also pay attention in cases of acquisition a business in another country. For example, many Ukrainian businessmen often sell their existing business to foreign investors/buyers. In such cases, to these issues to a buyer is added such an important factor as the national business practices, business culture, etc.. In this case, buying a business without quality legal support of the deal would be extremely risky operation.

Author: Natalia Kotiuzhynska, Junior lawyer

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Kydalov & Partners
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Publication Date: 09.06.2016
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