KGPC LLP’s Guide To Buying A Business
Purchasing a business is one of the greatest commitments you can make. Business ownership requires an extraordinary contribution of time, resources and money, and you need to balance many demands and risks to foster growth.
An essential element of any successful business is ensuring you follow the correct process to get started. Below are some crucial steps you should take when you are preparing to buy a business:
One of the most important steps in the process is to properly research the business you are interested in purchasing. This will provide you with a clear sense of the business’s strengths and weaknesses, as well as give you a solid sense of what you are buying.
You should ask for the company’s:
- Financial records and statements.
- Lists of suppliers and customers.
- Names of employees (including salaries and years with the enterprise).
- Details of any significant contract necessary for the success of the business.
- Lists of all assets and equipment of the business.
- Any major debts, licenses and liabilities.
The seller may ask you to sign a non-disclosure agreement before sharing the information listed above. This agreement will prevent you from using the information for any reason other than purchasing the business. It is wise to ask a lawyer for advice at this point in the process.
Decide on a Purchase Structure
The acquisition structure is the most fundamental part of the deal—What price will be paid? Who will be buying and selling? Will shares or assets be purchased, and when and how will that amount be given to the seller?
Private companies run most businesses, which likely means that all the necessary items associated with any business will be owned by a company. With that in mind, you will need to decide:
- Who will be buying the business – Will it be you personally or you through your company?
- What will be bought – Will you buy the shares of the company that owns the business or the business assets directly?
- What price will be paid – When and how will that amount be given to the seller?
Negotiate the Additional Terms
Contract terms deal with the structure of the purchase, sale date and whether there will be a personal indemnity if the seller is a company. However, the number and type of ancillary terms to be negotiated can change depending on the risks associated with the business. To stop the seller—or the owner of the seller—from creating a competitor business after the sale, you will want to insist that he or she sign a Non-Competition Agreement.
Have the Legal Documents Arranged
The buyer is usually responsible for preparing the often lengthy and complicated legal documents, which are sent to the seller’s lawyer to be reviewed before being finalized. The most important legal document is called the Purchase Agreement. This agreement covers everything regarding the purchase.
Keep the following tips in mind to decrease the likelihood of an exciting opportunity turning into a nightmare:
- Know what to focus on when to focus on it.
- Hire the right advisors and rely on them.
- Know when to walk away from a bad deal.
Looking for sound legal advice for your organization, business or corporation? Contact KGPC LLP today.