never use same lawyer when buying a business

While it is quite legal for buyers and sellers of a small business to use the same lawyer or conveyancer, and may seem convenient, it is inadvisable to do so, says the head of online conveyancing firm Conveyancing.com.

Full Answer

Are You making common buyer mistakes when buying a business?

That’s a mistake. A common one, but a big mistake. When buying a business whether it is main street or lower middle market business, you need to be aware of common buyer mistakes. If these mistakes work their way into your M&A deal process, they can undermine relationships, impede deal momentum, and jeopardize the closing.

What happens when you buy a business?

When you buy a business, you can buy its assets or its stock (in an LLC, there is no stock, the equity interests are called membership interests; in partnerships, they’re called partnership interests).

What are the most common mistakes merger and acquisition buyers make?

I have identified a handful of mistakes merger and acquisition buyers make consistently. These mistakes include financial, operational (execution-type), and legal issues. If you make these mistakes, you may not get your deal closed or, even worse, you may close the deal and regret it.

What issues do sellers care about when selling a business?

The sellers, like almost all sellers, are anxious to sell if the price is right. Issues come up pre-closing, such as salaries of seller employee post-closing, employee benefit plans post-closing, and the name of the selling companies post-closing, that are issues the seller cares about.

What does a lawyer do when selling a business?

When selling a business, a lawyer often works with other professionals to ascertain the value of the company, what assets and liabilities exist and how best to ensure this information appears in a positive manner to the potential buyer. This means explaining the structure, the layout, the files and figures and how employees ...

Why do lawyers work for businesses?

When buying a business, the lawyer may have more work than when selling. This is to ensure that due diligence is performed and all factors are considered when purchasing the new company.

What is a lawyer contract?

A lawyer drafts contracts that the buyer or seller needs to sign with the other owner. These should have certain conditions to ensure the arrangement is beneficial, and when necessary, advantageous for both parties. When a company is accruing revenue, it is often necessary to have an accountant to keep the book up to date.

What does a business lawyer do?

The lawyer may need to contact state officials, file documents with certain agencies and obtain licenses when buying a new company. It is his or her job to protect the owner from litigation, liability and legal injury when buying or selling a company. With a business lawyer, it is possible to achieve success. Provided by HG.org.

When is it necessary to draft contracts?

Drafting contracts and editing the terms is necessary when sealing a deal with the seller. This may even mean negotiating with the seller or his or her lawyer to ensure the best terms are attached to the arrangement. The lawyer may need to contact state officials, file documents with certain agencies and obtain licenses when buying a new company.

What is due diligence in business?

The employees, agreements in place, clients, business associations and numerous other processes need to be checked out . A lawyer drafts contracts that the buyer or seller needs to sign with the other owner.

Why should you hire a lawyer to help you with buying the business?

One of the most important decisions you can make when purchasing an existing business is to have an expert by your side. There will be documentation, contracts, and other interactions and your lawyer will make sure the entire deal is legal, legitimate, and valid.

What is the best way to find a business to buy?

As obvious as it may sound, the perfect business may be the one that is closest to where you live. Therefore, you may start your search by knocking on the door of a small business you admire and know because you see it every single day. Pay attention to word of mouth, this business may actually be for sale.

Take the Time to Research the Business and its Finances

Once you think you might have found the opportunity you have been looking for, find out as much as you can about the business. Ask for certified financial records, balance sheets, accounts payable and receivable, and documents related to employees such as their contracts and benefits.

Close the Deal

An experienced appraiser can help you and the owner reach a fair price. If you agree on an installment agreement for the purchase, your lawyer can help draft it or review it. Your lawyer can also help you with reviewing the sales agreement. This clearly is a very document-intensive process.

Why do I need an attorney for a business?

Some benefits of working with an attorney for buying a business include knowing the right questions to ask during negotiations, ensuring that a business is legally compliant, and getting advice from a legal expert on what types of clauses should be included in a final contract.

What is the first step to take when buying an existing business?

One step that is crucial when buying an existing business is that the purchaser must absolutely do its due diligence. This process may involve appraising the existing business and its assets, and making sure that the business is in compliance ...

Why do you need a due diligence team?

Hiring a formal due diligence team to assist with the process of purchasing a business can help ensure that an investment is a wise decision and that the purchaser will not be taking on any burdens that they cannot manage. Specifically, working with a business lawyer for business purchase comes with many benefits at this stage.

How many types of clauses are there in a contract?

Understand the different types of contract clauses. There can be anywhere from zero to fifty kinds of clauses included in the final purchase agreement. Be sure to incorporate ones that provide benefits for a purchaser and to steer clear of the clauses that could hurt a purchaser in the long run.

Who is Jaclyn from LegalMatch?

Prior to joining LegalMatch, Jaclyn was a paralegal and freelance writer.

Is it risky to buy an existing business?

Additionally, purchasing an existing business is not as risky as opening a brand new business. For instance, since existing businesses typically have verified customers, a network of professional contacts, and a financial history, it can make securing any necessary funding easier (e.g., business loans, investments, etc.).

What do you need to buy a business?

To buy a business for the right price and make the whole deal work from a cost and profit (upside) perspective – for it to be more advantageous to buy than to build the business, you need knowledge and discipline. I can’t give you the discipline, although I can pass on some knowledge.

How long before closing should you talk to the seller?

If your communication schedule says you will talk to the seller’s employees one day before closing and you find out from the seller three weeks before closing that there are rumors about the sale and seller employees are nervous, talk to the employees right now, assuming you have the seller’s permission.

What happens if you make mistakes in M&A?

If these mistakes work their way into your M&A deal process, they can undermine relationships, impede deal momentum, and jeopardize the closing. Worse, you may get the deal closed, and face the consequences of those mistakes after closing when it’s harder to make things work properly.

What is M&A in business?

Even though “M&A” stands for mergers and acquisitions , most M&A deals are acquisitions – a buyer purchases either the stock or the assets of a target selling company. Mergers are quite uncommon in the main street ($2 million or less) and lower-middle market (between $2 million and approximately $50 million) portion of the M&A market (although mergers are more common above $25 million or so). The amount of professional time – M&A attorneys, accountants, tax advisors, etc. — in getting a merger done right tends to not make much sense for smaller deals – professional advisors aren’t cheap. Well, good professional advisors aren’t cheap (there is that old saying that nothing is more expensive than a cheap lawyer). Plus, the reason for a merger is typically driven by taxation concerns and those concerns are more significant (more complex, at least) with larger deal sizes.

What is M&A acquisition?

M&A acquirers, especially larger companies with formal M&A deal processes (companies who have done hundreds, if not thousands, of acquisitions and have large deal teams and specific workflow), often make the mistake of emphasizing process to the point where it becomes the only thing that matters.

Do you want to acquire liabilities when buying a company?

And, typically, buyers don’t want to acquire any liabilities, which is fairly easy to do with an asset purchase (as with all issues in law, avoiding taking on liabilities of the business you’re purchasing isn’t always straight forward. For more about this, read How To Avoid Seller Liabilities When Buying a Company.

Is a professional advisor cheap?

Well, good professional advisors aren’t cheap (there is that old saying that nothing is more expensive than a cheap lawyer). Plus, the reason for a merger is typically driven by taxation concerns and those concerns are more significant (more complex, at least) with larger deal sizes.

What to do if you are buying a business you have not worked in?

If this is your first time buying into a business or you are buying a (type of) business you have previously not worked in, ensure you first obtain appropriate advice; particularly so from an experienced business advisor, your accountant and your business lawyer (once you are ready to proceed).

What happens if a business is not fully determined?

“key man”), then either a portion of the purchase price should be held in trust (i.e. a retained sum) to be payable subject to the buyer meeting an agreed net income value of an agreed period e.g. 6 months, 1 year, 18 months and with an agreed formula to adjust up or down based on whether the seller’s represented net income is achieved.

What should the buyer ensure?

Lastly, the buyer should ensure that all relevant copies of all business documents, contracts, transfers, key contract and contact details are securely retained. At this point notification should have been given to staff, clients/customers and third party suppliers and possible new or updated advertising of the business.

What happens if you walk away from a contract?

If one party seeks to not perform the agreement (i.e. repudiate or ‘walk away’), then the other party may not only be entitled to sue them for loss but, if it is the buyer walking away they possibly forfeit the deposit in addition to a claim against them by the seller for damages.

What happens if a sale agreement is terminated?

If the sale agreement is to be terminated (and if it is not mutually agreed by the parties) after appropriate Default Notice (s) have been served and the relevant time periods have expired without rectification of the default by the defaulting party , then a Termination Notice needs to be prepared and sent by the non-defaulting party, which may address the above matters or may reserve the non-defaulting party’s rights.

How far back do you have to go to get a business statement?

Ensure that all relevant business and financial information is up to date and, in particular, have current financial statements (balance sheet, profit and loss statements) as well as going back at least 2 or 3 years.

Do you need to have due diligence before approaching a bank?

Ensure that your due diligence and all the relevant other approvals and information are accepted before approaching a bank, as they will commonly require these to be in place before they will unconditionally approve It is also highly recommended to have obviously spoken to your bank or financier well before making the offer, so that you know what your actual financial capacity is.