The Law Offices of Paul H. Appel – Your Trusted Business Law Partner in New Jersey
Buying a Business · New Jersey
A short, focused legal risk screen before the letter of intent tells you whether a business is worth pursuing, what to ask for in the offer, and where full diligence should dig hardest.
Why the timing matters
Once a letter of intent is signed, a buyer has usually committed time, lender fees and emotional energy — and the seller expects the headline price to hold. A pre-offer risk assessment happens earlier, when walking away still costs almost nothing.
This is not full due diligence. It is a targeted look at the handful of issues that most often sink small and mid-sized acquisitions in New Jersey: a business that depends on one or two customers, an owner whose relationships are the real asset, a license or permit that does not travel with the sale, or an industry with exposure the asking price ignores.
Paul reviews whatever the seller or broker has already shared — the offering memorandum, summary financials, a lease, a customer list stripped of names — and asks the questions that reveal whether those documents are telling the whole story. The output is a short written view of the risks, and how each should shape your offer.
This page describes a general approach. What deserves attention in a given business depends on its industry, structure and documents, so treat the points below as a starting framework rather than advice for a specific purchase.
The screen
Each area below can either be priced into the offer, protected against in the purchase agreement, or treated as a reason to pass.
| Risk area | What to look for | How it shapes the offer |
|---|---|---|
| Customer concentration | One customer above a meaningful share of revenue; contracts terminable at will or on change of control | Earnout or holdback tied to retention; a closing condition that key customers consent or confirm |
| Key-person dependence | Sales, licenses or supplier terms that run through the owner personally | Transition period, consulting agreement and a seller non-compete written into the deal |
| Licenses and permits | Credentials held by an individual rather than the company, or approvals that cannot be assigned | Time and conditions for the buyer to obtain its own approvals before closing |
| Industry exposure | Regulated sectors, environmental history, product liability or heavy reliance on contractors | Specific representations, targeted diligence and possibly a different deal structure |
| Premises and contracts | Short lease term, landlord consent rights, anti-assignment clauses in supplier agreements | Consent and lease extension as conditions; price adjusted if terms cannot be secured |
Issues that survive the screen become the focus of the later legal due diligence review, rather than being discovered for the first time halfway through it.
A closer look
Revenue
Service businesses — staffing, maintenance contracts, professional practices — often look stable on paper while their revenue rests on personal relationships. Ask how many customers have written agreements, how long they run, and whether any allow termination when ownership changes. If the honest answer is "they stay because of me", the price should reflect that.
People
When the seller is also the lead estimator, the licensed professional and the face to every supplier, the buyer is purchasing a transition plan as much as a company. That transition plan needs to be in writing: how long the seller stays, in what role, for what pay, and what happens if they leave early.
Authority
Many New Jersey licenses, registrations and permits are issued to a specific person or entity and cannot simply be handed to a buyer. In an asset purchase the buyer may need to apply in its own name; in an equity purchase the entity keeps its approvals, but a change of control can still require notice or consent. Confirm which applies before you set a closing date.
Sector
Some businesses carry exposure their financial statements never show: contamination at a light-industrial site, warranty claims on past construction work, or workers paid as contractors who may not meet New Jersey's ABC test. Identifying the sector-level questions early tells you which specialised reviews to budget for.
Questions for the seller
Sellers and brokers can usually answer these without disclosing confidential details, often under a simple NDA.
Vague or shifting answers are themselves information. They tell you where to insist on specific representations and where to slow down.
How the review works
Send the materials the seller or broker has provided and a short note on why this business appeals to you. You receive a written scope and fee before work begins.
Paul reads the documents against the five risk areas above and prepares a list of follow-up questions for the seller.
You get a plain-English summary ranking the risks as price issues, contract issues or walk-away issues.
The findings feed directly into the letter of intent — structure, conditions, exclusivity and the diligence period you will need.
What comes next
A good risk screen rarely ends with a simple yes or no. More often it changes the shape of the offer: part of the price deferred into an earnout because one customer dominates, an asset purchase instead of a share purchase because the entity's history is unclear, or a longer seller transition because the relationships are personal. Those terms are much easier to propose in the first offer than to introduce later.
The firm's broader business purchase and sale services take over from there — the letter of intent, full diligence, the purchase agreement and closing. If you are still deciding how to structure the purchase, the comparison of asset and stock purchases is a useful companion to this screen.
Questions & answers
It is narrower and earlier. Due diligence happens after a letter of intent, with access to the full records, and verifies everything the buyer will rely on. A pre-offer screen looks only at the issues most likely to change your decision or your price, using information the seller has already shared. It is meant to decide whether to proceed and on what terms, not to replace the full review.
Not necessarily. Many good small businesses have one or two large accounts. The question is whether those relationships are contractual, how easily they can end, and whether they depend on the seller personally. Concentration is often handled through price, an earnout or holdback linked to retention, or a condition that the key customer confirms the relationship before closing.
It depends on the license. Some are issued to an individual and never transfer; others belong to the entity and continue in a share purchase but may require notice of the ownership change; still others must be newly obtained by the buyer in an asset deal. Identifying each credential and its rules early prevents a closing that leaves the buyer unable to operate.
Usually only what a serious buyer receives anyway: summary financials, a description of customers and suppliers, the lease or its key terms, and a list of licenses. Detailed contracts and names can wait until after a confidentiality agreement and letter of intent. The aim is to ask sharper questions, not to start full diligence prematurely.
Your attorney
Every matter at the firm is handled personally by Paul — the same attorney reads the documents, gives the advice and negotiates on your behalf.
Contact
Describe what the business is dealing with — a contract on your desk, a deal in progress, a dispute or a company you are about to form. You will hear back from the attorney who handles the work.
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