IF SOMETHING SOUNDS TOO GOOD TO BE TRUE
Everyone knows how this saying goes . Unfortunately , this is often the case when buying a business . Ensuring that a thorough due diligence is conducted on a business before it is purchased could prevent a buyer from falling victim to the all too common trap of not getting what they thought they had bargained for . Nicole Treacey of Macpherson Kelley offers sage advice to avoid pitfalls .
1 ) MAINTAIN A POKER FACE Usually a business purchase will be negotiated through a business broker . They act in the seller ’ s interest , not the buyer ’ s . A buyer should be mindful of giving away too much information about their future intentions as the seller may be a competitor . Minimising the sharing of ideas is wise in case the sale does not proceed . The broker may ask a buyer to sign a confidentiality or non-disclosure agreement – ensure that this gives adequate protection to both parties , not just the seller !
2 ) PROTECTION OF GOODWILL Often with many businesses there will a sum paid for the “ goodwill ” of the business . But what exactly is “ goodwill ”, and does it walk out the door when the seller leaves ? People commonly write off the idea of restraints of trade as being unenforceable and not worth the effort . In some cases , this is true . If the terms of a restraint are too broad or if the seller is not receiving adequate compensation in exchange for the restraint , then a court may be reluctant to enforce it . However , a carefully worded restraint can be enforceable and go a long way to protecting the goodwill of the business . Another option to consider are retentions of part of the purchase price . This means that part of the settlement proceeds are held in a trust account for a period of time and the business must meet certain benchmarks around goodwill and revenue before the seller becomes entitled to those proceeds .
34 Women ’ s Network Magazine