# A Beginner’s Guide to Buying a Small Business
## Key Factors to Consider Before Buying a Small Business
Are you considering buying an existing business? There are several essential factors to examine before making this significant investment. The following 12 key factors will help guide you in making a careful and informed decision when buying a small business.
### 1. Review Multiple Business Opportunities
It’s essential to review multiple opportunities of businesses for sale. Doing so allows you to compare and contrast the companies to find the best fit for your needs. Utilize business-for-sale websites such as [BizBuySell](https://protect-us.mimecast.com/s/l7e7Co2AjZUr4yAQF1oWW9/) and [BizQuest](https://protect-us.mimecast.com/s/RWGnCpY9kZsnDRg7uDsWY5/). Additionally, consider seeking the expertise of a business broker in your area.
### 2. Do Due Diligence
Due diligence is crucial when buying a small business. Reviewing past financial statements, assets, liabilities, contracts, intellectual property, and other key areas will ensure that you have a comprehensive understanding of the business’s status before making a purchase. Be thorough and diligent in this process to avoid any potential pitfalls.
### 3. Expect to Sign an NDA
Signing a Non-Disclosure Agreement (NDA) is a standard practice before accessing any sensitive confidential information about a business for sale. It’s essential to review the NDA carefully and have your attorney approve it before signing.
### 4. Find the Right Business Attorney
Acquiring a small business requires a skilled business attorney who has experience in handling such transactions. Finding the right attorney is crucial to navigate the legal complexities involved in purchasing a business.
### 5. Set Up an LLC or Corporation as the Buyer
To protect yourself from personal liability, it’s advisable to consider setting up an LLC or a corporation as the buyer of the business. This legal step can safeguard your personal assets in the event of any unforeseen issues with the business.
### 6. Decide on a Type of Business to Buy
Determine the type of business that aligns with your goals and expertise. Consider factors such as the business’s nature, whether it’s brick-and-mortar or online, and your availability to run the business full-time or part-time.
### 7. Decide on the Type of Acquisition
Understanding the type of acquisition, whether it’s an asset purchase or a stock purchase, is essential for structuring the deal. This decision can have implications for taxes and other legal considerations.
### 8. Prepare a Good Term Sheet or Letter of Intent
Before delving into the complexities of a purchase agreement, it’s beneficial to prepare a letter of intent or term sheet outlining the key terms and conditions of the deal. This document helps ensure that both parties are aligned on the essential aspects of the transaction.
### 9. Assess the Risks of the Business
Understanding and assessing the risks associated with the business, such as dependence on key individuals, potential liabilities, and customer/supplier relationships, is critical for making an informed decision.
### 10. Prepare Financial Projections
Creating financial projections for the business post-acquisition can provide valuable insights into the capital needs and potential budgetary requirements. This exercise can help in planning and managing the business’s finances effectively.
### 11. Prepare a Good Acquisition Agreement
A well-prepared acquisition agreement is vital for protecting the buyer’s interests in the transaction. It is essential to work with a skilled business lawyer to ensure that the agreement is comprehensive and covers all necessary legal aspects.
### 12. Check Out Permits and Licenses
Ensure that the business holds all the necessary permits and licenses, especially for regulated industries such as healthcare and restaurants. Verifying compliance with zoning and environmental laws is also crucial.
By carefully considering these factors and following a systematic approach, you can increase your chances of making a successful small business acquisition. This guide will help you navigate the complexities of buying a business and make informed decisions.
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*Copyright by Richard D. Harroch. All rights reserved.*
For additional guidance and resources, refer to [A Comprehensive Guide to Due Diligence Issues in Mergers and Acquisitions](https://www.allbusiness.com/a-comprehensive-guide-to-due-diligence-issues-in-mergers-and-acquisitions-120837-1.html), [Due Diligence Checklist—What to Verify Before Buying a Business](https://www.bizbuysell.com/learning-center/article/due-diligence-checklist-what-to-verify-before-buying-a-business/), and [How to Negotiate a Business Acquisition Letter of Intent](https://www.allbusiness.com/negotiating-an-acquisition-letter-of-intent-100407-1.html).
