Question
What should I check before buying a business?
The seller says the business is profitable, but how can I verify everything before I agree to buy it?
Answer
Before buying a business, review its financial, legal, and operational records to understand what you are purchasing and any risks that may come with it. A careful review can help confirm the business's value, identify potential liabilities, and uncover issues that could affect your decision.
The amount of due diligence depends on the size and complexity of the business, but taking time to verify key information before signing can help avoid unexpected problems after the purchase.
Which documents and records should you review?
Reviewing the business's records can help you evaluate its financial health and legal obligations. Key items include:
- Financial statements and tax returns.
- Customer, supplier, and employee contracts.
- Business licenses and permits.
- Outstanding debts, liens, or legal disputes.
- Leases, equipment, and other business assets.
- Intellectual property, such as trademarks or copyrights.
- Cybersecurity.
- Privacy compliance.
- Employee classification.
- Wage claims.
- Pending governmental investigations.
Comparing these records can provide a clearer picture of how the business operates.
What questions should you ask the seller?
Asking detailed questions can help clarify how the business performs and whether there are any hidden concerns.Consider asking about:
- Why the business is being sold.
- Current and expected revenue sources.
- Existing contracts and long-term obligations.
- Pending lawsuits or regulatory issues.
- Employees who are expected to stay after the sale.
- Any major risks or upcoming changes affecting the business.
The answers may help you evaluate whether the business meets your goals and expectations.
What to do next…
- Gather and review the business's financial and legal records.
- Ask questions about the business's operations, liabilities, and future plans.
- Review the purchase agreement carefully before signing.
- Confirm what assets, contracts, and obligations are included in the sale.
What to consider in your specific situation
- Whether you're buying the business entity or only its assets.
- The financial condition and existing obligations of the business.
- The wording of the purchase agreement and any warranties.
- Required approvals, licenses, or contract transfers.
- Federal, state, and local tax considerations.
- The size, industry, and ownership structure of the business.
Since every situation is different, consider getting more information through Rocket Copilot or an attorney review to move forward more confidently.
At Rocket Lawyer, we follow a rigorous editorial policy to ensure every article is helpful, clear, and as accurate and up-to-date as possible. This page was created, edited and reviewed by trained editorial staff who specialize in translating complex legal topics into plain language, then reviewed by experienced attorneys to ensure legal accuracy.
Please note: This page offers general legal information, but not legal advice tailored for your specific legal situation. Rocket Lawyer Incorporated isn't a law firm or a substitute for one. For further information on this topic, you can Ask an Attorney.
Need help navigating changes to your business, such as restructuring, changing ownership, or relocating?
Navigating changes to your business is an important step to protecting your company's future. Whether you're buying or selling a business, changing ownership, moving to a new state, updating your name, or changing your entity type, Rocket Lawyer gives you the tools and support to help you move forward with confidence:
- Rocket Copilot Q&A for instant legal information
- Ask an Attorney for human responses within a business day
- Document insights, Contract Review, and other smart legal tools
Manage your business changes with trusted legal support.
Explore more about changing a business
Explore more about buying or selling a business
Buying or selling a business involves careful planning and legal preparation. These questions explore how to determine a business's worth, what to check before buying, the legal documents required, and what happens to existing contracts and permits during a sale.
- What should I check before buying a business?
- How do I determine what my business is worth?
- What should I check before buying a business?
- What happens to contracts, licenses, and permits when a business is sold?
- What legal documents do I need to buy or sell a business?
- See even more questions about changing a business
Explore more legal topics and questions
Browse related topics to learn more about contracts, common clauses, business filings, and other legal issues that may apply to your situation.
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- Breach of contract
- Term and termination clauses
- Relationship and scope clauses
- Intellectual property and confidentiality clauses
- Payment and work terms clauses
- Change and inclusion clauses
- Risk and liability clauses
- Dispute resolution clauses
- Required filings and deadlines
- Changes to a business
- Operating without proper registration
- What filings are required to start a business
Disclosures
- This page offers general legal information, not legal advice tailored for your specific legal situation. Rocket Lawyer Incorporated isn't a law firm or a substitute for one. For further information on this topic, you can Ask an Attorney.