Buying a business
Whether buying or selling a business, the parties need to agree general principles as to how the deal will be structured: price, whether the shares or just certain assets are being acquired, timescales etc. These broad terms form the basis of the purchase and are usually set out in a Heads of Terms document.
As a very first step though, there are likely to be sensitivities around the seller divulging information to the buyer and the seller will likely want a confidentiality agreement signed.
Before agreeing terms, or generally too involved with how the deal will structured the buyer should consult their accountant and solicitor. If not, It could cause (in fact, very likely will, significant issues further down the line resulting in delays, misunderstandings and bad feeling between the seller and the buyer – leading to a loss of trust and making what is a stressful time-consuming process – more so…
In agreeing heads of terms [LINK] There will be crucial factors that need to be considered as to how the purchase should be structured and there will be external factors, which might not be apparent to the seller and the buyer but will be to their advisors and will affect how the purchase is structured as well as timescales and the best way to structure the purchase.
The buyer needs to be clear early in the process as to what it will/not be buying for example, factors for full consideration early in the process include:
- Stock: it is unlikely that the purchaser will want all the stock (for example, it will not want to be saddled with obsolete or damaged stock
- Fixtures & fittings
- Raw materials
- Work in progress
- Debtors: will the income from work billed by the seller pre completion
- Creditors: will the seller keep all amounts owing to creditors at completion?
- Office equipment: will all of this be acquired – down to every laptop (also be sure that all office decoration/fittings will remain in place if that is important to you
- Goodwill
- the customer base
- Intellectual property rights
- The website/domain names
- Telephone number
- Employees
The transaction will be subject to the buyers and its advisors carrying out a full investigation – i.e. a ‘due diligence’ process. The temptation for the buyer is to rely on their solicitor to carry out – which the solicitor would, but the purchaser should glean – and continue to glean – and have evidence of as much information as it feels it needs. It becomes harder further down the line and the sell. However, the purchaser needs to get its sleuthing hat and use laser focus on carrying out due diligence – the buyer needs push back on the seller on the information needed and start this process asap. Often buyers rely wholly on their solicitor to conduct this process it needs to be a 2 pronged approach. The solicitor can (and should) it deems appropriate, but it is the buyer who will know some of the key issues it needs to investigate.
Due diligence could include:
Property: searches & enquiries
Intellectual property – whether registered (for example, trademarks)
Investigation of the seller’s accounts
Actual physical examination of various assets – again, don’t rely solely on the solicitor, if the purchase involves machinery, or there is air conditioning or (in a restaurant) extractor fans – insist on seeing them in action
While the purchase agreement will give protections, the purchaser needs to get under the skin of the business. Far better to flush out the issue before contracts are signed & having to take action against the seller post completion. In fact the rationale both behind the due diligence process and focusing on relevant issues
There may need to be consents from 3rd parties before the purchaser can acquire the business – for example, from landlords. Key customers agreement.
The buyer should not underestimate the resources, time and processes that will need to be pulled in from other parts of its existing business in order to service the new business.
No Obligation Call
If you would like to have a no obligation chat as to how to protect both your business and your family then I am always happy to talk, without obligation:
Tel: 01225 287516 or e mail: jane.latham@lcls.co.uk