- Are you ready to run your own business?
- Do you have experience/knowledge in the field?
- Do you want to start from scratch or buy a established business?
- How much funds are available for this investment?
Always prepare a business plan before you start looking at places. A lot of people jump into it without doing their research which ends up being a very expense failure. Some people are lucky to walk out breaking even but most cases you'll end up loosing half or all your investment. Please note that starting your own business is an investment. Like any investment, even if you are thoroughly prepared, their may be gains and loses. Samples of business plans can be found in teh following link:
LOCATION, LOCATION, LOCATION:
Like any real estate investment, businesses are also tied to location. (Unless you are running an online company.) In most business plans this issue should of been covered in "Target Location." This section should of covered your research on rent costs, utility costs, real estates taxes (some landlords want the tenant to pay the real estate taxes), premise maintenance cost (if any), etc.
Search for businesses or empty premises in the scope of your target location.
LEASE
Review the lease. If you are starting from scratch, ask the landlord for a copy of the lease. If you are buying an established business, ask the seller for a copy of the lease. Once you have received a copy of the lease. Read it. Even if you understand everything it says, take it to a local attorney around the target location. The attorney may have some input about the business, landlord, or location. Further, you may have misread an information, or there may be language that may be problematic.
SECURITY DEPOSIT / SELLER'S PRICE
Security deposit ranges from one month to six months. Some landlord may go to the extreme asking for a year's worth of rent as a security deposit. The average security deposit is from one to three months rent. Please note that if a landlord requires a year's worth of rent, it may be that the business owner's changed often or the landlord was owed a lot rent in the past. But then again it may be that the location is worth it to put up a year's security.
Check if the Seller's asking price is fair. When you purchase an established business, you need to do a income verification check. Check the seller's gross and net income. Roughly, income checks are done from 1-3 weeks. FYI: Please be advised that dishonest seller's can manipulate the business income. They can ask their friends and family to come and give them more business during the income check period. TIP: Take the employee to the side, give them a little monetary compensation for their information. <- This is your choice. Now that we covered the two, can you afford it. CONTRACT BINDER
Before you can do an income verification usually the seller(s) are going to want a small deposit and perhaps a binder to be signed. Small deposit meaning from $500 to $1,000. As soon as you receive a binder, you should have your attorney review it or always have a attorney review clause in any document you sign. Attorney review clause is a paragraph stating that even if you already signed it, you still can have an attorney review and change the agreement within certain number of days. A binder agreement consists of simple facts. Seller's information, buyer's information, the agreed price amount, a clause with the projected income sales amount, attorney review clause but most of it, make sure the document you are signing states: BINDER AGREEMENT. This agreement is usually made by the seller, seller's broker, or the seller's attorney.
CONTRACT
Some sellers will not allow the buyer to do an income verification until a contract is in place. The seller, seller's broker, or the seller's attorney should provide you with a draft. Don't jump in and sign the document. Take it to an attorney and make sure the income verification clause is in the contract. The amount of sales are usually followed by + & - 5% to 10%. Meaning the amount can not be guaranteed exactly. The contract will states a contract deposit amount which is usually 10%. This should be made payable to the seller's attorney. It isn't recommended to make it payable to the seller. The following are couple of things that the contract should be contingent to:
- Landlord's Consent to the Assignment of Lease or New Lease; and even lease negotiations are involved, lease negotiation terms, or simple language to state that buyer must receive a lease acceptable to buyer.
- Seller's legal entity information
- Buyer's legal entity information
- Income Verification
- Free of liens and encumbrances
- Seller's indemnity
- Seller's representation of good faith
- Breach of contract terms associated with attorney fees
- Restrictive Covenant (Business, individuals, employees)
- Lease Security Deposit (Included or excluded from the lease)
- List of Equipment / Account receivables / List of business assets
- List of Inventory (if any)
- Business shall be operated under normal conditions
LIEN SEARCH
As soon as contracts are signed, your attorney should do a lien search for you. This stage is to find out if the sellers has any debt on record. It's recommended that you search both the seller's individual name and corporate entity if he is incorporated. The attorney's lien search will not be 100% guaranteed as to the seller's liabilities.
LANDLORD'S CONSENT
Simultaneously, your attorney should be working on obtaining consent from the landlord. If there are any lease negotiations, you can work with the landlord directly if you're familiar with leases but again don't sign anything until your attorney gives you the okay. Try not to piss off the landlord while negotiating. Don't ask for ridiculous request. Put yourself in the landlord's shoes.
FINAL WALK THRU.
Before you attend the closing, go to the business, check to see if the seller replaced the broker equipments or if all the equipments are there as per the contract. Will you be using the same employees, if so ask the seller how much they've been paying the employees. Make sure the business has been running under normal conditions.
CLOSING
Attend the closing. Usually at the seller's attorney's office. Final negotiations before you sign any documents if there were any problems at the walk thru. Sign. Get the keys to the business. (Recommended that you replace the locks and you'll probably have to give the landlord a set copy of the keys.) Try to develop good relations with the Landlord. Congratulations and Good Luck.
PURCHASE OF BUSINESS
1. Review the lease of business
2. Sign the contract
3. Place an order for Lien Search & Incorporation (if necessary)
4. Set the closing date
5. File the Bulk Sales Notice and UCCs (if any). Make the closing binder for the Client.
** a) Each case vary
b) Inform the proper licenses for the client to obtain
Dry Cleaning Store : Jobber License
Laundromat : Laundry Permit
Deli-Grocery Store : Beer License, Beer & Wine License, Food Processing License, Cigarette License
Nail Salon : Business License with Dept. Of State
Tip : When a client calls and ask what to do first, tell her/him to bring the lease to review.
Incorporation : $500.00
Business Certificate : County Supreme Court, Confirm the filing fee with United Lawyers Service or through the internet.
(Used to be $120.00 for filing)
**New Jersey : We have to file Bulk Sales Notice to State of New Jersey before the 10 days before the closing. Or file the notice of bulk right after the signing of contract.
BUSINESS PURCHASE
The following are some of the fees that you should be aware of for business purchase closing:
Expense NY Lien Search: $150.00
NJ Lien Search: $250.00 (estimated)
Incorporation: $500.00
D/b/a: $400.00
LLC: $600.00
P.C.: $700.00
Any type of searches or corporation matters must be paid up front before we order
Create Invoice
1. Where? New York or New Jersey?
2. What type of store? (i.e. Nail Salon, Bakery, Restaurant, Deli, etc.)
3. Does client have copy of lease?
If not have him request it from the seller and/or we may have to request it from seller’s attorney.
4. Ask client if they will incorporate (set up a corporation)? If so ask them to give you three names when they come in to sign contracts.
5. Do we need to deal with the landlord? If so, obtain landlord’s information, company, name, address, phone number, fax number, and/or email.
Contact Landlord or its agents and check what documents are required to obtain consent to an assignment or new lease.
6. Any special tasks? (i.e. Promissory note = Seller gives the personal mortgage)
7. Request contracts from seller’s attorney. Have client come in to review. Further, if clients wanted to incorporate, make sure contract is assignable to corporation. Discuss with client about licensing depending on what store they are buying.
8. Client needs to give us a retainer/deposit of $500.00. (The reason why is $500.00 is because we need to do lien searches. If client wants to incorporate with us charge him/her another $500.00
** Purchase in NJ must file Bulk transfer notice as soon as contract is signed
Purchase in NY for Deli/Grocery should file Bulk transfer notice as soon as contract is signed
Ask attorney for legal Fees: Usually $850 - $1500 subject to change depending on the case
9. After contract has been signed. Send to Seller’s attorney for signatures
10. As soon as we receive fully executed copies, order lien search and corporation
11. As soon as corporation is filed with the Department of State, have client come in to sign assignment of lease / new lease under the corporate entity
12. As soon as lien search and consent to the lease or assignment is received, schedule closing.
** Make sure lien search is cleared and assignment/lease is satisfactory to our client.
No comments:
Post a Comment