Buying A Business Conditions On Contract
These 'conditions of contract' occur when putting in an offer for a business as the offer is usually subject to certain conditions relating to both the vendor and the prospective purchaser. These conditions will need to be acceptable to both parties.
Each set of conditions is very much dependant upon the deal being struck and can include items such as:
The vendor(s) ongoing involvement with the business post sale to pass on the knowledge and know-how of the business operations. This is known as a handover period and it is normal for this to be a condition.
A restrictive covenant preventing the vendor(s) from setting up the same or a similar business within a pre-determined time span and within a certain distance of the business being sold. This is vital so that the vendor cannot open a similar business close by with the possibility of taking employees and customers with them.
Subject to due diligence being carried out and the prospective purchaser being completely satisfied with the outcome. You need to ensure you have some flexibility in this one. For instance, when a condition is paying a deposit within a number of days, make sure the condition states "working days". This is very useful when your monies are on deposit and require a notice period plus public holidays can sometimes mean 5 days becoming much longer making it impossible for you to meet the condition!
Subject to finance if you are seeking to borrow money to buy the business. Speak with your Finance Broker and make sure s/he can deliver an offer of finance within the period specified. Beter still, ask them beforehand and include their time estimate as the condition.
Stock levels being kept at a certain level to enable the business to continue as a going concern with new owners. This too is really important; too much stock and the monies required to complete the deal increase, not enough stock and the operations of the business may be put at unnecessary risk.
Timely payments to the suppliers/creditors of the business. This will cover the issue of the business gaining a bad reputation for slow or poor payment of bills
Be very careful to think of all aspects of the particular business you are considering purchasing and the circumstances surrounding it to ensure you come up with a set of suitable and necessary conditions for you.
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