Buying a small business: check, check and check again!
Apr 18, 2012
The most common telephone conversation I have at the moment from prospective clients goes like this: “I’ve made an offer for a website business for £10,000 and it’s been accepted. I need a contract today. How much will you charge for a contract that will protect me completely?” My first reaction is usually one of excitement for you as you are embarking on a new chapter in your life. My second is one of concern as it usually becomes apparent that you are (usually) placing all your savings into this business, you want “complete” protection and you cannot tell me exactly what you are buying. So to make your first (free!) phone call with me more efficient and helpful for you, here are my 3 checks of things to do before you call me: 1. Check what you are buying. Are you buying the shares of a Company (share purchase), cherry-picking certain assets from a Company (asset purchase) or are you buying the business from a person, i.e. a sole trader (asset purchase). The agreements differ and I will need to know. 2. Check how you are buying. Meet with your accountant. It is one of the first questions I will ask you. I will want to make contact with them. You will need tax advice in regards to the purchase. If it’s an asset purchase your accountant will need to divide the purchase price up between the assets (for tax). 3. Check you should be buying. Two simple words to save you a lot of stress and money (but not your time!) “Due Diligence”. This is asking the seller to confirm basic facts and information for you. It is immaterial if you’re buying shares or assets there are basic areas you will want and need proof of including:
- ownership of the shares or assets;
- possible liabilities (example: any debt over an asset/company);
- intellectual property (example: contract with website developer);
- copies of supply and customer contracts (example: hosting agreement, website terms and conditions);
- stock; and
If you follow my checks above, I should be able to answer your initial question with: “Ok, that’s very exciting for you. That information is most helpful. The next steps will be ABC. You will need a share/asset agreement and I would estimate the cost to be in the range of £XXXXX.” Waterfront try to provide you with fixed fee quotes so the more you can tell me about your transaction the more likely it is that I can give you a fixed fee that won’t change when I receive more information. I think you would agree this is a much more useful answer for you than…. “Unfortunately I would love to help you but until I understand more about the transaction I really can’t give an idea of costs. If you go off and do XYZ I will be able to help you.” Not helpful if you’re under time pressure and want to get on and buy the business!