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Business formation may include purchasing an ongoing enterprise

On Behalf of | Nov 16, 2018 | Business Formation

There are many details to consider when buying a business in Oregon or anywhere else. It is true that purchasing an ongoing business may give the entrepreneur a better chance of succeeding by taking over a tried-and-true enterprise. However, even in this easier area of business formation numerous perceptions can prove wrong and backfire after the purchase. 

A purchaser should therefore engage in a sufficient amount of due diligence. The first thing that may be required in the purchase process is the signing of a confidentiality agreement. This will protect the seller by assuring that the prospective purchaser will not reveal the seller’s secrets and inside knowledge. It is important to get a commitment in writing from the prospective purchaser that the information shared will remain secret and never provided to third parties or the public.

Then the process of learning about the business will begin. The purchaser will want to know about existing leases, government restrictions or pending changes, the existing competition and the regular costs of doing business. In addition, the purchaser will want to examine the books of the company to determine the regularity of customer flow and the average monthly and annual sales figures. How a profit is determined and whether there have been consistent profits earned will also be important inquiries for the purchaser.

Other considerations to have on the table prior to making an offer is the nature of any hidden costs, the existence of vendor agreements, employee benefits and historical employee problems. It is also prudent to demand and get a noncompete agreement from the seller of the business. The purpose of that is obvious and such an agreement must be crafted so that it is not so restrictive that the courts in Oregon or other states will strike it down. The procedure for business formation with respect to an ongoing business thus contains many activities, including many not mentioned above, that must be performed prior to making an informed decision.