Business Purchase & Sales

Advantage:

• The business is already established and has a proven business structure, including an organisational framework, client base and financial history, allowing you to know what you are dealing with.
• Businesses will often have pre-existing staff who will enable a smooth transition for your takeover.
• You will have immediate access to the established business assets, such as real estate, equipment, machinery and inventory.
• There is no period with minimal cash flow, as the business is already running and, presumably, has been for a while.
• You do not have to go through the start-up process, which can be expensive and confusing in itself.

Disadvantage:

• Purchasing a business can be expensive upfront.
• If the business is underperforming, it may be difficult and costly to make it profitable.
• Existing staff may not like the change in ownership.
• You may need to purchase new equipment or move premises due to certain factors.

Businesses can often be purchased in two different ways which will be reflected in the type of contract you have. The two types of contracts are:

• Purchase of assets in the business – this option is preferable where the assets of the business are encumbered. By purchasing only the assets of the business, you are able to determine and purchase only the assets that are unencumbered. This prevents you from any potential liabilities associated with the previous owner of the business.
• Purchase of shares in the business – buying shares in a business means you will be purchasing all assets of the business which exposes you to any claims that someone may have against the business.

The terms of your business contract will vary depending on your circumstances and the outcome of your negotiations with the seller. However, there are standard terms that are commonly found in these contracts, including:

 

• Purchase price;
• What you are purchasing (e.g., assets only, or shares and assets);
• Payment method (e.g., by instalments, by loan, etc.);
• Restraint of trade (i.e., preventing the seller from opening up a similar business near the one you are purchasing).

It is important to seek legal advice when you have a contract to purchase a business as a qualified solicitor will be able to assist you in your negotiations with the seller and finalise the sale agreement. This will ensure your own interests are protected during and after the sale.