Purchasing a business can be very exciting yet complex undertaking. If you are considering buying a business, it is essential to undertake due-diligence and understand right from the beginning why the seller is selling the business. It is equally important for you to obtain appropriate legal and financial advice prior to signing any contract.
In this article we will highlight three fundamental issues when purchasing a business.
Due Diligence: Due Diligence involves checking all the available records of the business to ascertain the true value of the business that you are intending to purchase. An initial assessment of the profit and loss statement, financial records, employee entitlements, existing contracts, cash flow record, assets and liabilities of the business, customer records, restraint of trade issues, list of plant and equipment are required to conduct due diligence. It is important to undertake due diligence before exchange of the contract so that you could make an informed decision before you are bound by the terms of the contract. However, if time does not permit you to conduct due diligence before exchange of contract it is also possible to conduct due diligence after contract is exchanged. In this situation, it would be essential to include special condition in the contract of sale allowing you to pull of the contract if you are not satisfied with the outcome of the due diligence. This is where expertise of an experienced business lawyer assumes paramount significance.
Understanding the Lease Agreement: Generally purchasing a business involves leasing the business premise from the landlord. You need to get legal advice on the lease agreement and understand your obligation as would be lessee and see whether the duration of the unexpired lease term enabling you adequate time to run your business in your anticipated profit margin. If the business is a franchise business, the franchisor’s disclosure statement needs to be carefully reviewed as well. Therefore, the experience, professional support and guidance of a business lawyer are imperative for you to make a proper decision.
Arranging your Finance: Unlike a sale of land contract, cooling off period does not apply to a sale of business contract.What this means is that once you sign a sale of business contract, you are bound by the terms and conditions of the contract unless any special condition enables you to rescind the contract in the event of your inability to obtain finance approval. This is why it is important for you to ensure that you have sufficient funds to purchase your business before contract is exchanged.
If you are considering purchasing a business, you can contact us on (02) 8379 1811 or email email@example.com for professional assistance.