The Business Sale & Purchase agreement
As a business broker it is my goal to educate potential vendors, and potential business buyers, with all the information they ned to know, free of charge. Before you sell your business (or buy a business) it would be good to understand most of the clauses included in the Business Sale & Purchase Agreement.
If you are looking to purchase a Business Sale & Purchase Agreement you may find them hard to find. I supplied a copy free of charge for a while until the Law Society told me off for copyright infringement. If you want a copy of the latest Business Sales & Purchase Agreement, send me a direct email at rudy.kokx@linkbusiness.co.nz
The art of a well organised business sale is in writing a good Sale & Purchase agreement
Selling a business is not always easy, there is an art to it. Business sales is a process, not an event. As a business broker it is our task to ensure the process goes as smooth as possible. We make money on the negotiation and only on successful sales.
The art of a well organised business sale is in writing a good Sale & Purchase agreement. We need to find a balance between protecting the Vendor and not scaring the Purchaser. A couple of things make a good agreement;
- Only let the Due Diligence start once finance is approved. There is no use in wasting time going through the business if you don’t know if the Purchaser can actually afford to buy the business.
- The Purchaser must have a good understanding of the timeframe in which information will be distributed during Due Diligence. i.e. First find out if the finances stack up, then they can have a look at the business systems/procedures and (in most cases) once a Purchaser in satisfied with Due Diligence they can have contact with key staff, suppliers, customers etc. before the deal becomes unconditional.
- Personally I like to write an agreement that requires sign off throughout the agreement all the way through but with plenty of opportunities for the Purchasers to get out of the contract, mainly to protect the trade secrets of the Vendor. We don’t want a purchaser to feel trapped into the contract. Them feeling trapped will only result in them trying to find ways out of the contract. Creating plenty of Golden Bridges could save a lot of frustration and aggravation from both sides.
- Outside the main centers in New Zealand (Auckland, Hamilton, Wellington and Christchurch) you will find the solicitors are much more relaxed to when the deposit is being paid; most Business Brokers in Auckland will require a purchaser to pay a 10% deposit upon signing the agreement, in Whangarei we often receive deposits upon the business being declared unconditional. If it were a competing business we’d still require a deposit prior to starting the Due Diligence period, to protect the Vendor.
Obviously there are specific cases where some of these points would not make a difference and there are always exceptions. But, in most cases, a Business Sale & Purchase Agreement is nothing more than a gentleman’s agreement. In Due Diligence there are many reasons of why the contract could be cancelled, often without giving any reasonable explanation from the would-be buyer! This is the main reason why we feel strongly about receiving the deposit upon signing (when the purchaser is a strategic buyer or is in a competitive industry), and not when the deal goes unconditional! If anything, it shows intent and creates a trust from the purchaser to actually want to purchase the business.
Most Business Sale & Purchase agreements will have additional clauses inserted specifically to that particular industry or business. For example relating to liquor licenses, Vendor Assistance and Key employees.
Having a Business Sale & Purchase Agreement drafted by a solicitor can be costly. We recommend to use the expertise and skills of your Business Broker to draft the initial agreement, negotiation the agreement on price with the purchaser, insert a Solicitor Clause into the contract and have the agreement signed of within 5 working days from the date of the agreement (why spend money if you can’t agree on the sale price?!) A solicitor will then approve the contract or will recommend additional clauses.
if you just have some general questions regarding business sales or buying a business in general I am more than happy to help you. Simply complete the contact page to have a no-obligation discussion about your requirement. It won’t cost you anything. We are generous with our time!
FREE LINK Northland downloads:
FREE Booklet outlining the sales process: Managing The Sale of Your Business
FREE Booklet outlining other options to an Exit Strategy