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Deciding to buy a business is something that should not be taken lightly. It is essential that you get the advice you need to ensure you are making the right decision.

The Process of Buying a Business

Whether you are buying a small home franchise business or multimillion-dollar manufacturing business we have the expertise to help you get through each stage.

1. Preliminary Due Diligence

Once you have found a business that you think meets your requirements the next stage is to conduct a preliminary due diligence. This is where you will probably have to sign a non-disclosure agreement and in return will receive limited information about the business. You may receive some financial information about the business together with information about the assets which make up the business and any lease from which the business operates from. At this stage we recommend you seek the advice from your accountant. They will be able to assist you to work out what price you are willing to pay for the business.

2. Negotiation

This is where we usually become involved. During this stage you work out the terms of the offer you would like to present to the Purchaser. In New Zealand the most common form of agreement used is the Agreement for Sale and Purchase of a Business produced by the Auckland District Law Society Inc. However, this usually needs amending by adding further terms which are required for a particular deal. We can help you by drafting the clauses you need to go into your Agreement. These clauses may deal with issues such as employees, special assistance to be provided by the vendor, vendor finance and conditions such as entry into certain supplier agreements or a franchise agreement. You may also require more extensive restraint of trade provisions than those contained in the Sale Agreement. We can help you work out what additional clauses you need to make the deal work for you.

3. Conditions

Once you have signed the Agreement, the next stage is typically the conditional stage. This is the period of time when the conditions under the Agreement need to be satisfied. The most common condition is due diligence (this is where you (and your advisers) get to review the information about the business and you get to decide whether or not you really want to proceed to purchase it). During this time your accountant should be taking a detailed look at the financials of the business and we may need to review any important agreements which the business has in place (e.g. leases, supplier agreements, franchise and licence agreements). Other common conditions include finance (this allows you time to get the funding that you require to purchase the business) and a requirement that a certain employee or employees enter into an employment agreement with you. Landlord approval is also common where the business operates from a premises.

4. Going unconditional

If all of the conditions in the Agreement are satisfied the Agreement will be declared unconditional. This means you are contractually bound to purchase the business and can be sued for damages if you don’t complete the purchase. As your lawyer it will be our role to prepare the deed of assignment of lease (if applicable), deeds of restraint of trade and assist you with employment agreements (if required). If you are getting funding to help you buy the business, we will also need to review, advise you, arrange execution of the funding documentation and have things ready so the funds are in place when you settle your purchase. We also make sure the purchaser has completed their requirements and review the settlement statement from the purchaser’s lawyer to make sure everything is in order. We also check that there are no financing statements registered against any of the assets you are purchasing so no one else has a claim on them.

5. Settlement Stage

This is when you become the owner of the business. Immediately prior to the settlement date you will probably complete a stock take in consultation with the owner of the business to confirm the value of the stockyou are purchasing. We will then make sure all other requirements are taken care of – for instance – the deed of assignment of lease has been signed by all parties, employees have signed employment agreements, any deeds of restraint signed by the vendors, the original lease documents are available to you, and any other settlement requirements which are relevant to your purchase of the business are completed. Once we are happy all requirements are met, we will then pay over the funds to the vendor. Congratulations you are now a business owner!

We love helping our clients buy and sell businesses. If you are looking at buying a business get in touch with us as soon as possible. We can guide you as painlessly as possible through the process.

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