5 Tips for Buying a Business
Whether you’re just beginning your search or have already selected the business you would like to purchase, the first step is to hire a lawyer. A company of any size will require a significant amount of paperwork to be done before the closing. The accounting books must be thoroughly reviewed and details of the transaction will need to be negotiated between both parties. A purchaser must take precautions to protect his investment, and only an experienced business attorney can provide the knowledge necessary to accomplish this task. Our attorneys have compiled a list of the top five tips to aid those who are ready to begin the journey of buying an existing business.
Letter of Intent
This is a non-binding, short written contract that aids in the negotiation of the acquisition. This document will contain terms and conditions pertinent to the sale. Binding provisions such as non-disclosure, exclusivity, purchase price, and assets to be included in the transaction will be outlined in the agreement. A Letter of Intent is beneficial to both parties as the most important negotiation points will already have been addressed before the signing of closing documents.
Investments that are made for the duration of a year, such as a security deposit or advertising agreements, typically are not included in the purchase price. Instead, these expenses are brought up with the closing adjustments during signing. Requesting for these amounts to be disclosed prior to final contracts will help to avoid unexpected costs.
Assuming the Lease
The buyer must also take into consideration the lease agreement of the current facility. Important details such as the remaining length of time of the lease, whether any pre-paid rent shall be pro-rated, and whether or not the new owner will be permitted to assume the lease by the landlord.
Indemnity is the contractual obligation to “hold harmless.” This agreement is usually coextensive and will serve to protect both parties. For example, if a lawsuit is filed against the business pertaining to something the previous owner did, the current owner will not be held responsible. This also applies in the event of the opposite scenario.
Ease the Transition
It is customary for a personal relationship to be a vital part of any retail or service business. Requesting for the seller to remain present at the business for a brief period following the sale will aid in creating a smooth transition between owners. This time can be used to introduce the new owner to their customers and provide additional insight into finer details of the business, such as the accounting. The purchaser should consider compensating the previous owner for their time as an incentive for their assistance.
If you are looking to buy a company, contact a knowledgeable business attorney at Kelley Fulton Kaplan & Eller today. We will provide counsel to ensure you are conducting a purchase that is beneficial and that your assets remain protected throughout the process. Our legal team is here to help guide you during this exciting endeavor.