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Steps for Purchasing a Business

When looking at buying a business, there are many steps to go through to get you to the final settlement. It can be a time of uncertainties and unknowns and is made a lot easier if you understand the process. However, if you haven’t been through this process before, keep reading because we answer some of the most common questions about purchasing a small business. We breakdown into stages what you can expect and how to proceed, giving advice on due diligence and ensuring you have the right representation when moving forward.

  1. Making and Accepting an offer

Purchasing a small business in some ways is like buying a home for the first time. There are steps to go through to get to the endpoint, and the first step is to make an offer to purchase. While this is an exciting part of the process, it is essential to think clearly about the offer, what a reasonable price is, and what terms. This step can take place in a number of ways, but the most common being in the form of a written letter or verbal offer.

Like any form of contract, it is recommended that an offer is formally made in writing. This way, there is less chance of confusion and everything is set out in clean and explainable terms. Before presenting the offer, ensure that all the information is correct because once it becomes a binding document negotiation is a lot harder. Further to this, ensuring it is done accurately and in writing also cuts down costs and time spent on further negotiations. If or when the offer you presented is accepted, this should also be delivered to you in written form. We recommend not taking a verbal yes, even if that is customary of whom your purchasing from, a written acceptance is more legally binding.

At this point, you may want to agree on some of the following terms:

  • Price;
  • The assets that will be included in the sale. This includes equipment, clients lists, goodwill and business names;
  • The inclusion of employees if this is part of the deal;
  • Any conditions if there are any in regards to finance and/or due diligence;
  • Whether any training will be provided with the sale; and
  • Once the business is sold, whether you indent to restraining the seller from competing against you.

Although you may find the seller may insist on one and if this is the case then ensure you pay the money through a third party such as a business broker or lawyer and not directly to the seller. Money should never change hands between you and the seller without appropriate representation.

 

  1. Review the Contract

Once the general terms of purchase are agreed to by you and the seller, moving forward is for the contract to be prepared by the seller or their lawyer. In most cases, a lawyer will do this so that everything meets the standards in which it must. Usually, in these circumstances, the lawyers from each side will communicate until the agreement is finalised and ready to be executed.

Moving forward, you will spend time reviewing the contract with your lawyer about points and clauses that need negotiating that will then be identified and isolated. Once all these are agreed on by both parties, it’s time to sign and formally exchange the contract. This is when you will be required to pay the deposit with third party representation. At this point, due diligence and transference of business assets need to also take place.

  1. Settlement Day

Due diligence should be completed during the exchange and settlement of the business. This confirms that the seller’s promise is indeed accurate and enables you to continue through the process of owning the business. On the date or from the settlement date, the following should be ready to transfer:

  • Business name;
  • Lease;
  • Employees;
  • Telecommunications;
  • Client list; and
  • Assets.

This is also the last chance to calculate any final adjustments to the price and may include:

  • Wages accrued by employees;
  • Rent payments for the month; or
  • Any stock that has already been ordered and paid.

While the list may sound exhausting its essential for settling everything for the purchase of an existing business. Once everything is ready, the final pieces include organising the settlement, cheques and attendance, and you can begin starting a new chapter in your life. If you have followed all these instructions, it will help you through the process a lot easier, and you will find yourself simply handing over the money and keys.

Are you thinking of buying a small business? Learn more about the steps of purchasing a business on this legal website.

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