Key Business Buyer Issues

Imagine that you complete the purchase of a business.
You get the keys to the place, and on day one you walk in totally excited to take advantage of the wonderful opportunity only to discover that there’s no furniture in the building.

Oops! You immediately panic and call the seller who informs you that the purchase agreement did not include any of the office furnishings so he sold them to a used office supply store the prior week. How can it be? You bought “the business” and surely that means everything that goes along with it – right? Wrong!

Now, the example above is a bit of an exaggeration but

it’s not entirely uncommon for a buyer to discover they overlooked acquiring a key component of the business.

Or, they were not articulate enough in describing for example what precise inventory was included in the sale.

Business sales are typically done as asset sales meaning, a buyer purchases the assets, but not the actual corporation.

Unless specified and clearly itemized and detailed and also contractually referred to as “substantially all of the assets necessary to continue to operate the business,” those “assets” include whatever the purchase agreement states.

It can be a number of things with the point being never to assume what you’re getting.

Furthermore, a buyer must always ask themselves what exactly, in addition to the hard assets are they acquiring? Is it a customer list, relationships with customers, a supply contract, a guaranteed income stream, or recurring revenue, just to name a few. And, what exactly is the value of what’s being acquired?

Most importantly, one must be purchasing a relatively secure income stream that can be quantified based upon prior year’s provable financial information.

One question a buyer must ask is, “What would be the cost to reproduce the business as a start-up compared to paying a premium for one that’s already operational?” While I’m not a fan of start-ups, it is nevertheless a useful exercise and one that should be done at least as part of the sanity test when buying any business.

Back to the assets for a minute. While a competent attorney will have you covered (the optimal word here being “competent”), it’s never overkill to list out everything you expect to come with the business including those desks, computers, inventory, customer lists, phone numbers, websites, social media accounts, access codes, contracts, and on and on the list goes.

Just like every other step in the business buying process, you can never be too detailed or too diligent when it comes to being certain you’re getting exactly what you pay for.

Leave a Reply

Your email address will not be published. Required fields are marked *


Webinar Registration