Tuesday, 25 October 2011

Protect yourself… confirm your deal in writing

What happens when you find a business that you are interested in? 

The business broker will set up a meeting with the seller once you select a business in which you are interested. This will give you an opportunity to speak candidly with the seller and find answers to your questions.

If you are still interested in purchasing the business after a discussion with the owner, the broker will help you draft an offer based on the price and terms you feel are appropriate.

The legal language that makes up your offer needs to be thorough. It will set out the basic terms of the proposed purchase and sale.

When an issue or concern is particularly important to either party, that concern should be specifically addressed in the offer.  By addressing those concerns at this stage of the deal continuum, each party will have an opportunity to determine early on, before both parties have incurred considerable time and expense, whether the other party takes a strongly opposite position.  In other words, the “deal killers” should be identified and resolved early on, and in writing.

The comprehensiveness of the offer depends to some extent upon the business being bought and sold and the parties involved.  However, there are a number of conditions typically standard to a business transaction.  Two of the most important clauses in our offer make the transaction contingent upon your Lawyer reviewing the legal language of the offer and your Accountant's analysis of the financial statements.

As a Buyer, you will want your Accountant to review the financial data to verify the cash flow that has been represented by the Seller.  Your Accountant will probably want to see the Seller’s General Ledger, Bank Statements, Sales Tax Reports, etc.  There will be a specific time period to execute this review, upon receipt of the required documents.

If there is a promissory note, or vendor-take back, the Seller will also ask the Buyer to supply documentation in order to review their credit worthiness.

The legal language in the offer can be binding, non-binding, or both.  Regardless, your agreement should ensure it is subject to legal review, to confirm there is no legal language harmful to you.   Plus, both the Buyer’s and Seller’s lawyers will make sure that all the legal paperwork associated with business transactions gets done, and gets done properly. 

Professional business brokers are aware of the various ‘deal killers’ causing agreements to unravel.  Further, they utilize clear, concise documents that have been reviewed by transaction
Lawyers which are designed to protect both the buyer and the seller. For both Buyers and Sellers, using a broker allows them to follow a step-by-step process, structures legal and accounting review in a timely manner and keeps each party focused on the pending matters associated with the transfer day.

Do you have small business questions you would like answered about this article or others?  Please visit www.VRWindsor.com or call 519-903-7807. 
William Sivell is a sales representative of VR Windsor Inc., Business Brokerage; his blog appears every Tuesday.


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