Buying or Selling a Business

Buying a business can be a big step forward, or it can turn out to be disastrous. This Article assumes that you have already found a suitable business and explains how to complete the purchase of the target business, including checking what state the business really is in and how Due Diligence plays an important role in buying or selling a business.

The first you need is to agree and sign the heads of terms agreement which sets out what you are offering to buy whether a whole business or only certain assets of it. The heads of terms agreement also sets out any key conditions such as whether the seller is expected to run the business and also spell out price and payment terms, for example, whether any part of the payment will be paid in shares rather than cash.

Once the heads of terms agreement is signed, you will need to conduct effective Due Diligence. This involves the buyer examining the key elements of the seller’s business to ensure the business reflects what the buyer is perceived to be purchasing. This is important especially when it comes to assessing what the business is worth. Moreover, it also provides confirmation for the buyer that the business is of the status in relation to what the seller has represented it to be.

The process of Due Diligence usually includes a checklist of all the information required for the business the buyer’s solicitor sending the seller’s solicitor a questionnaire and requesting several documents. The buyer would then examine these documents ideally at the buyer’s solicitor office, at the seller’s premises or at an offsite data room.

This process gives the buyer the opportunity to examine every aspect of the business, to name a few, these include: Accounts including bad debts, historical information such as profit margins, growth and working capital, legal ownership of assets and stock, property owned by the business, planning aspects, lease review and covenants and easements.

Above all, the significance of Due Diligence is that it provides a form of security for the buyer before entering into a formal contract to buy the business and it ensures that in all circumstances the seller of the business is giving the most accurate information possible and where the seller fails to do this, it will amount to a misrepresentation and the buyer may have the right to withdraw the agreement and/or claim damages.

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