Below are seven of the most common pitfalls buyers encounter when purchasing a business, along with practical tips and legal strategies to help you avoid them and make your acquisition smoother, safer, and more profitable:
1. Buying Without Forming a Legal Business Entity.
Before signing contracts, leases or loan documents in your personal name, stop and ask: Have I formed the correct business entity (LLC, Corp, etc.) for this acquisition?
Many buyers skip proper entity formation and immediately begin operating under their personal name. That exposes your personal assets to business liabilities such as creditor claims, contract obligations, and more. By establishing the right entity before closing, you protect personal assets, optimize taxes, and set the stage for clean ownership. Steps to take in Missouri:
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Select entity type with attorney/tax advisor-input (LLC is common for small business acquisitions).
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Register with the Missouri Secretary of State, obtain EIN, and update registrations/permits.
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Ensure the acquisition agreement is in the entity’s name, not yours individually.
2. Overlooking the Details in the Purchase Contract.
Acquisition contracts often appear straightforward, but hidden within them are the details that can determine whether you’re inheriting opportunity or unexpected risk. Key areas to scrutinize include:
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Exactly which assets are being transferred (inventory, IP, customer lists, equipment).
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Which liabilities you assume vs seller retains (accounts payable, leases, warranties).
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How the transfer of ownership interest is structured (asset purchase vs stock/membership purchase).
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Provisions for representations & warranties, indemnification, post-closing adjustments.
Failing to thoroughly review the purchase contract means you might find yourself stuck with lease obligations you never expected or contracts the seller cannot legally transfer. An experienced business attorney can make sure every term is clear, defining who is responsible for what and how those responsibilities are properly transferred.
3. Ignoring the Seller’s Ownership Documents.
In many privately-held businesses, the seller’s internal agreements such as the operating agreement, shareholder agreement, or succession plan could reveal hidden issues. For example:
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The ownership documents may be incomplete, outdated, or legally flawed, creating uncertainty about who truly holds authority or ownership rights in the business.
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If a primary owner or partner doesn’t have the full authority to sell, it may lead to disputes or deadlock among owners.
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A minority member may have rights that complicate the transfer of ownership and sale of the business, such as a first right of refusal to purchase.
By reviewing the seller’s governance documents and asking targeted questions, you gain clarity on whether the business will transition smoothly or face disruption. This review can also reveal hidden ownership issues, outdated agreements, or compliance gaps that could create legal issues after the sale.
4. Failing to Negotiate a Strong Non-Compete Provision.
One of the silent killers of business acquisitions is when the former owner simply becomes a competitor and takes employees, customers, or suppliers with them. A robust non-compete (reasonable in geography and duration) will:
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Prevent the seller from starting a similar business within your territory.
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Ensure the seller can’t assist or do consulting with a competing business.
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Safeguard customer lists, supplier relationships, trade secrets and intellectual property.
Without these protections you might purchase business, only to find the former owner replicates the model across the street six months later, eroding value and market share. To protect yourself, you should include a fair non-compete provision in your agreement that would prohibit the seller from directly competing against your business.
5. Skipping a Thorough Lien Search.
Business assets may appear clean on paper, but checking for hidden encumbrances is a critical step. A lien attached to equipment, a UCC-filing against a receivable, or a lease assignment clause can derail ownership and cost you extra money.
Key checks include:
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Run a UCC + lien search for the business and its principals.
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Verify equipment, vehicle, and real-property titles (does the seller actually own them free and clear?).
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Check lease agreements and landlord consent for assignment.
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Confirm that all material assets are transferred free of third-party claims in the purchase agreement.
It’s important to know if there are any liens attached to any of the assets listed in the purchase agreement. Investing in a thorough lien search can be valuable to know that there aren’t any third-party interests in the asset. This will avoid future problems.
6. Not Doing Proper Due Diligence.
Conducting adequate due diligence is your “shock absorber” and doing it well reduces surprises; doing it poorly can blow your deal. It covers more than just reviewing historic financial statements. You’ll want to dig into:
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Financial: Year-over-year profit and loss, audited or reviewed statements, cash flow, debt structure, accounts receivable & inventory aging.
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Legal/Contractual: Material contracts (supplier, customer, employment), litigation history, license/permit status, IP ownership.
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Operational: Employee turnover, systems and processes, technology, vendor dependencies, customer concentration risk.
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Market/Competitive: Has the business grown organically? Is it dependent on one major customer? Are there upcoming regulatory, economic or competitive threats?
In Missouri and beyond, buyers who rely solely on the seller’s representations without independent verification often find out too late that major liabilities, false profits or obsolete assets were hidden. Having a CPA plus a business-lawyer team is a wise investment.
7. Neglecting the Commercial Lease.
Many businesses operate from leased premises, and the commercial lease agreement can become a liability if the transfer isn’t handled right. Potential issues:
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Lease may not allow assignment without landlord consent.
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Rental rates may escalate dramatically just after sale.
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Deferred maintenance or environmental liabilities may lurk.
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Location may face zoning changes or unfavorable renewal terms.
Have your attorney review the lease (and any equipment/vehicle leases). Confirm renewal terms, transfer provisions, renewal rate caps, and landlord approval risks.
