Date:
February 10, 2026
Author:
Ian R. Cohen
/
Principal
For many entrepreneurs, the fastest path to ownership isn’t starting from zero: it’s entrepreneurship through acquisition. Buying an existing business can provide immediate cash flow, an established customer base, and proven operations.
But make no mistake: buying a business is one of the most complex and financially risky transactions you’ll ever undertake. Deals that look attractive on paper often hide serious problems: undisclosed liabilities, unenforceable contracts, tax exposure, and litigation risk. When acquisitions go wrong, they go wrong expensively.
At IRC Legal, Ian R. Cohen advises entrepreneurs and investors who are looking to buy businesses the right way. Below is a practical, step-by-step guide highlighting the legal and strategic inflection points that matter most.
Step 1: Define Your Acquisition Criteria Before You Search
The most common mistake buyers make is chasing deals before defining constraints. Buying the wrong business is worse than buying no business at all. Key questions to answer upfront:
- Industry Experience: Do you understand how this business actually makes money?
- Financial Capacity: How much equity do you have? Are you pre-qualified for SBA or conventional financing?
- Geography & Lifestyle: Is this a location-dependent business or can it operate remotely?
Only after locking in these criteria should you engage brokers, online marketplaces, or off-market channels.
Step 2: Assemble a Deal Team That Protects You
Acquisitions are not solo endeavors. You need advisors whose incentives align with yours.
- Business Attorney (IRC Legal): Structures the deal, limits liability, and ensures the contract reflects reality.
- CPA / Financial Advisor: Validates earnings (Quality of Earnings), identifies red flags, and models tax outcomes.
- Business Broker (Optional): Helps source deals and manage communications, but does not protect you legally; sually represents seller.
Pro Tip: Buyers routinely sign bad NDAs and exclusivity terms before calling a lawyer. That’s an unforced error. Bring legal counsel in early.
Step 3: The Letter of Intent (LOI): Where Leverage Is Set
Once you’ve reviewed high-level financials, offers are typically made via a Letter of Intent (LOI). This document outlines the purchase price, seller financing/earn-outs, the due diligence timeline, and the Exclusivity Period (usually 60–90 days).
While the purchase terms are usually non-binding, exclusivity and confidentiality are binding. Never sign an LOI without legal review; bad LOIs lead to bad deals.
Step 4: Due Diligence: Verify Everything
Due diligence is where deals are confirmed, repriced, or killed. This is your chance to confirm that the business is what the seller claims it is.
Core Legal Due Diligence Areas:
- Assets and Working Capital: Verifying assets needed to run the business and how much you expect it to cost you each month.
- Contracts: Customers, vendors, leases. Are they assignable? Are there "change of control" clauses?
- Litigation & Compliance: Checking for past, pending, or threatened claims.
- Intellectual Property: Trademarks, software, and copyrights, confirming that the company actually owns them.
- Employment Matters: Wage/hour exposure, misclassification risk, and restrictive covenants.
- Other Deal Specific Considerations
Step 5: Deal Structure Matters More Than Price
How you buy the business often matters more than what you pay. There are two primary paths:
Asset Purchase (Buyer-Preferred)
You acquire selected assets and avoid most historical liabilities.
- Pros: Lower legal risk, cleaner break from the past, often required by SBA lenders.
Stock or Membership Interest Purchase (Seller-Preferred)
You acquire the legal entity itself, including all legacy liabilities.
- Pros: Simpler for sellers and often tax-advantaged for them.
- Cons: Higher risk for buyers without aggressive legal protections.
Step 6: The Definitive Purchase Agreement
This is the binding contract that governs everything post-closing. This document is not "boilerplate"; it is where risk is allocated. Critical protections include:
- Representations and Warranties: The seller's sworn statements about the business.
- Indemnification Provisions: Your recourse if the seller misrepresnted or omitted facts.
- Escrows and Holdbacks: Money set aside to cover potential future claims.
- Non-Compete Covenants: Preventing the seller from setting up a new business or interacting with your customers the day after closing.
Final Thought: This Is Not a DIY Transaction
Understanding how to buy a business is not the same as successfully closing one. The legal and financial exposure is real, and mistakes compound quickly.
If you are evaluating a business acquisition, you need counsel who understands both deal mechanics and real-world risk.
Ready to buy a business with clarity and without surprises?
Contact IRC Legal today to schedule a consultation with Ian R. Cohen and ensure your acquisition is built on a solid foundation each step of the way.
