STRATEGY

How do I deal with potential hidden liabilities in a business that's for sale?

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Buying a Business mentor Tom West responds to the following question from an inc.com user:
I've found a business I'm really interested in buying. How do I deal with any potential hidden liabilities? On the surface, the business almost looks too good to be true.

Tom West responds:
The closing process often brings skeletons out from the closet. An honest seller should be disclosing any unpaid indebtedness; pending legal environmental or governmental problems; and other tangible or potential liabilities. If your seller isn't doing that, you should definitely ask.

Before you make any kind of offer, you should ask the seller for a list of all the assets being sold: any fixtures and equipment, patents, copyrights, trade names, and so on. You should also get a schedule of all (if any) debts of the business that you will be asked to assume.

It's critically important to get good legal advice at this juncture. Sound advice can prevent you from paying for more than what you bargained for -- whether you're purchasing the assets of a business or the stock in the corporation that owns the business. I can't stress that point enough: Before you get too far into any deal, it pays to get competent legal advice. Again, it's about the only way to make sure you don't buy more than just the business!


Related resources at inc.com:
Acquisitions: A To-Do List for Due Diligence
Seven Ways to Avoid Merger Blunders

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Last updated: Sep 21, 2000




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