So you are looking to buy a small business. As well as researching the market you will want to put a solid contract in place. A solid contract, or agreement for sale and purchase, should protect you from costly surprises after settlement.
Investigating the company
First things first, investigation of the company and its financial records, known as due diligence, is important. Due diligence may be carried out before signing the agreement. Alternatively, you may incorporate a clause in the agreement giving you time to investigate and the ability to walk away if you are unhappy with your findings.
Have you run this type of business before?
If the business is new to you, you may want to negotiate some 'vendor assistance'. The vendor, or seller, may agree to work with you as you transition into the business for a period of time after settlement.
Who are the key employees, key suppliers and key customers?
As part of your due diligence, find out the key players. Key employees have valuable experience, and without key suppliers or customers, your new business may cease to operate or be less profitable. Conditions can be inserted into your agreement to give you time to negotiate arrangements with these key players.
What if the vendor started a similar business in competition with you? Inserting a restraint of trade clause will limit the vendor's ability to compete in a specified geographical region, for a set period of time, in nominated areas of business.
Premises - owned or leased?
Does the vendor lease the business premises? Find out how the long the current lease lasts; is there an option to renew? If the lease is only short term, consider making your agreement conditional on negotiating a new lease.
It's important to remember that buying a new business is not all about price. The team at Simpson Western can provide you with valuable advice assist you in negotiating terms which meet your needs at the same time protecting your investment so that you can enjoy your new business venture.
Originally published in The Millwater Mag.