There are quite a few things that you need to consider when buying an existing business.
Lots of people make enquiries from us “I want to buy an existing business”. However they are not really 100% clued up on the process and key issues.
A lot of these things are preliminary and basic common sense things that professionals such as your lawyer, your accountant and your bank manager can guide you through.
Your business broker early on will generally provide you with a non binding Heads of Agreement document that will outline the main issues that define the sale of the business and your commitment to buy it on what terms you have agreed.
Buying A Business
If you have not spoken to your lawyer by this time, now is the time to before you sign anything.
Then and only then will the Seller/ Vendor ask their solicitor to draw up the actual contract that will govern the process from hereon.
The contract is not a take it or leave it document but should be treated as a working draft of ultimately will be the deal between the vendor and the purchaser (you).
It doesn’t mean that you can renegotiate every part of the deal again, otherwise the Vendor will say, quite rightly, that you are not conducting the matter in good faith.
Instead it is the nuts and bolts of how the matter will progress that will be defined in detail in the contract.
Buying An Existing Business?
So things like the following matter in a contract;
- The completion date (settlement or handover money and get the keys date). This should be preferably about 28 days. This is so all parties have enough time to get everything they need together
- A full list of communication mechanisms that form part of the sale. This includes the phone, facsimile, domain name, email addresses, social media handles etc. Anything that needs to be the ways that clients and customers communicate with the business. This is so that they all continue seamlessly after the Completion date.
- Restraint time and distance are important aspects that impact on you and the Vendor. They impact you in that you are buying the goodwill of the business. You don’t need the vendor setting up again down the road taking with it the custom you just paid for. This also impacts the Vendor in that they can’t be barred from being employed or restrained from operating a similar business. This is a delicate balancing act that respects both parties position.
- The training period is also an important issue. How long do you need before you take over? It depends how comfortable you feel especially after settlement. This is when the vendor normally wants to get on with spending their money. You even may not want them being around after you own it. There are pros and cons as you can see.
- The trading stock maximum price is also an important issue in businesses that trade and carry a lot of stock. You need to decide on a limit on what is acceptable and what isn’t early on. This is so that after the time you exchange the contract it is clear to both parties what stock that will be allowed for.
The bottom line is there are a whole heap of issues that will be relevant. The decision of you wanting to buy your first business is a significant one.
By now you have worked out you need the help of good commercial lawyers (like us) to advise you.
Here is an article that may also interest you on the topic of Legal Issues When Buying A Business
Call us now if you are thinking of buying an existing business or franchise. Indeed also call us if you a selling one.