Purchase of Business

If you decide to proceed to purchase then the next step is to examine the most recent balance sheet and profit and loss statements of the business. If necessary engage an accountant or business expert to interpret the financial statements. Examine more than one year's financial statements to see if they show a trend, for example a downward spiral. Base your assessment of the profitability of the business on legitimate tax returns and do not be seduced by stories of the cash nature of the business.

If you have carried out your investigations and negotiated a price then you may be in a position to proceed to exchange of contracts. Prior to exchange of contracts you must be certain that your finance has been arranged and will be available by the end of the completion period specified in the contract. It may be very risky if you proceed to exchange contracts prior to having unconditional written loan approval from your finance institution. It would be most unusual if you were able to negotiate a "subject to finance" clause in your contract, although sometimes it is possible to negotiate vendor finance. If the vendor is prepared to finance your purchase to some extent then it would be normal that you would have to offer security in some form such as personal guarantees, mortgage over real estate, a traders bill of sale over the business assets or a fixed and floating charge over company assets if the purchaser is a company.

Prior to exchange of contracts you must be fully familiar with the terms of the lease being offered as part of the business assets you are purchasing. Clearly you will need to know the amount of rent payable, the outgoings that you will be required to pay, whether there are any options for you to renew the lease, the frequency and nature of the rent reviews. You must also be certain that the local authorities have approved of the use of the premises.

You should negotiate an appropriate restraint provision so that the vendor is not free to participate in a new business that might compete with the business that you have purchased. It would be disastrous if you purchased the business only to find that the vendor poached its customers and loured away all the good staff. You should decide whether there are key members of the staff that must be retained and often this will be the vendor of the business or the principal of the vendor company.

If you are purchasing a business in a field in which you have no experience then it is important that you negotiate appropriate training and tuition periods. These should be specified in the contract and be of such a nature as to ensure a smooth hand over of the business at completion of your purchase. During the tuition period you must be sure that you will have the opportunity to learn all of those things which make the business a success such as suppliers, client lists, marketing techniques, the strengths and weaknesses of the staff members and the general day to day running of the business.