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Buy an Existing Business

There several reasons to buy a business, including:

• Entering into an industry by buying an existing, proven business with existing customers and known cashflow rather than starting a business from scratch;

• Expanding the client base of your existing business through the acquisition of a competitor; or

• Expanding your existing business into new markets through the acquisition of a business in that market.

Regardless of your motivation, an overview of the steps required to acquire a business are:

Due Diligence

A target business should be closely inspected by an array of experts before negotiations begin regarding the sale of the business or its assets. In addition to an attorney, an accountant and a valuation expert should be hired. For larger transactions it may be prudent to hire an investment banker or business broker as well.

Legal Due Diligence

An attorney should investigate the target business. The purpose of legal due diligence is to structure the sale and negotiate representations and warranties made by the target business. Due diligence also looks for legal impediments to M&A, governance issues, securities issues, insider issues, business activities, environmental issues, current contracts with vendors and clients, pending litigation, assets and liabilities, employees, intellectual property ownership rights, and several miscellaneous matters. The object of legal due diligence is to know exactly what will be purchased or merged prior to closing.

Accounting Due Diligence

An accountant independent of the target business should be used to uncover information about the target business, taking into consideration the industry in which the target operates. Financial conditions, historical financial statements, accounting procedures, and books and records should be inspected by the independent accountant. Financial analyses, including projections of earnings and cashflow under various assumptions, and evaluations of the sufficiency of working capital should also be performed by the independent accountant.


The independent accountant should also determine the proper accounting treatment for the transaction, taking both financial and tax matters into consideration. It is also good practice to ask the independent accountant for a cold comfort letter, an accounting opinion signed by the independent accountant, stating that he or she believes the figures in the financial statements to be correct.

Fair Market Value

When the independent accountant has generated and signed off on financial statements, the valuation expert will determine the value of the target’s significant business assets and/or the value of the whole target business. It is strongly suggested that a valuation expert independent of the target be used rather than relying upon the impartiality of a valuation expert supplied by the target.


When due diligence of the target business has concluded, including verification of the target’s financials, and the fair market value of the target business or the target’s key assets have been independently assessed, financial arrangements should be finalized, and a contract for the transaction should be entered into between the target and buyer.

Where to Start

Contact San Diego Corporate Law for a consultation, to discuss your current business situation, and to receive personalized suggestions for your business situation.

Are you buying an existing business?


Schedule a Consultation: 858.483.9200