How to Research & Purchase a Company

Do full research on a business you're interested in before purchasing it.

There are a variety of reasons why you might want to purchase another company. The cost of establishing a whole new department within your business might be too expensive. The other company might have employees or other intellectual property that you desperately need to take your own business to the next level. Maybe you just want to absorb a competitor. This article discusses the process of researching and purchasing a company.

Things You'll Need

• Lawyer Accountant

Instructions

Research

1. Go to the Hoovers website to look up the business. Hoovers contains full company profiles for more than 25 million businesses. The information listed includes the business locations, yearly sales, number of employees, rankings, competition and other important details. You may have to pay a subscription fee to get all of the company research information that you need.

2. Do research on the Better Business Bureau's website by looking up the company's name to see if it is in good standing with the bureau. You will be able to look up how many complaints have been filed by customers against the company and whether they have been resolved amicably.

3. If the company is publicly traded, you should be able to contact the Securities and Exchange Commission (SEC) for information about the business' SEC filings.

4. If the company releases a public annual report, be sure to view the annual reports for at least the past three years to determine the past growth and estimate the future growth potential of the business.

5. Do a general Google search on the company to see if it is mentioned on other websites and in what context, and to research public complaints from customers on the company (see "Resources" for a link to a consumer complaints site).

Purchase

1. Send a certified letter to the company's owner or high-ranking representative to notify him or her of your interest in purchasing the business. You may choose to refrain from mentioning your offer price until after you sit down and meet with the owner. You probably want to get some more information directly from "the horse's mouth" before throwing out figures. Instead, simply mention that you are interested in making an "attractive offer" to purchase the business. Do not discuss why, as this could cause the potential seller to believe that you are desperate, which could ultimately drive up the price.

2. When you receive the return receipt confirming that the certified letter of your interest was received, follow up with a phone call after a few days to set a meeting.

3. Prepare a list of questions that you think will be helpful at the meeting. You might want to bring a lawyer and accountant along to inquire about the company's newest innovations, future plans, current inventory, financial statements and employees. You have to discuss how the debts of the business will be handled---will the debts offset the sales price, or will the debts simply remain with the previous owner? What is most important to you regarding the purchase of this company? What do you need to be reassured of before laying out your money?

4. Determine your purchase price and make your offer either at the meeting or via correspondence. You may go through a series of counteroffers until an agreement is reached. Draw up and sign a letter of intent; one copy should be delivered to the seller via certified mail.

5. Have your lawyer draw up an official business purchase agreement. If you are buying a company that is a corporation, your lawyer (or the seller's) is going to have to take care of drawing up paperwork for the sale of a corporation as well, which involves the sale of stock. Keep in mind that you will probably only want to buy the assets of the corporation, so that you will not assume the corporation's liabilities (discuss this in more detail with your lawyer). If the business is a partnership, both partners must be in agreement about the sale of the company.

6. Set a final closing meeting to sign final paperwork and issue payment (certified check). Have a third party (preferably your lawyer and/or business partner) be present to witness the transfer of ownership.

Tips & Warnings

• You may want to hire a broker to handle the research, negotiation and purchase of the business. Consult with your lawyer about any tax issues that may affect you and your newly purchased business.

Resources

• Hoovers
• Contact the SEC to Find a Company's SEC Filings
• Buy and Sell Businesses
• Complaints
• When You Need More Detailed Guidance About Purchasing a Business Including Info on Taxes and Corporations