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Questions for buyers

Question for all who have bought businesses -- how are any risks/liabilities managed? For example, the seller tells you there revenue is x and it turns out that the revenue is actually much lower or they indicate they own the IP and this turns out not to be true. The sample contracts I have seen online have the sellers disclaiming all warranties of any kind. Do you basically do the best diligence you can?

Relatedly, do you structure the payment as one flat payment or is there an "earn-out" where you pay over time based on revenues earned by the business?

Thanks,

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    When you buy a business, you need to ask for a feasibility/due diligence period. You should be willing to sign an NDA. During this due diligence period, you can request all the documents to verify the information they said. You can request a report from Stripe, Baremetrics, ProfilWell, and/or bank statements. Go over the support tickets/emails and read the issue customers are facing and make sure those issues are resolved before taking over. You can even have the seller quickly go over the code, hosting, and deployment setup.
    Verify all the expenses from the bank statement. Make sure there is no spike in new signups in the last 60 days. If so, something is fishy. Most likely most of those will churn. Make sure their Churn is low and customer lifetime value is high.

    As for the contract goes, in my case I purchase the business through feinternational, they took care of the contract and they made sure it was not one-sided. Make sure there is NO COMPETE clause until you get your ROI or at least 5 years. Also, make sure the contract includes at least 25 hours (at no additional price) support post-sales. You can remove "disclaiming all warranties" from the contract. Additionally, I had the broker confirm, none of the code was either from the open-source or someone else's IP. If so, they need to disclose it prior to the sales.

    I hope, it helps and good luck!

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      Thank you for sharing your experience, I really appreciate it :)

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