In Kamloops and throughout BC, it’s a time of opportunities for small businesses, and if you’ve been thinking about getting out or getting into business, this might be the time to take the plunge. What do you need to consider to ensure this is a successful move for you? Gillespie’s experienced business lawyers offer steps to consider.
BUYING A BUSINESS
- Do your homework
Research, research, research! Buying a business will be an enormous investment of your time and finances, so even if an opportunity to purchase a business arises that really excites you and you want to rush to the goal, it’s important to take time to ensure that this is going to be a successful venture.
Ask questions such as:
- Why do I want to work in this industry?
- What’s happening in the market right now?
- What’s happening with the competition?
- How can I improve upon what the current owner is already doing?
- Would I be able to keep existing customers and key suppliers?
A helpful step is to create a business plan. This will force you to investigate the business’s challenges, opportunities and history so that you have a clear idea of what you’re getting into and what’s ahead of you for the next few years.
Our business lawyers can often tell when a client considering the purchase of a business has done a business plan because they know the answers to critical questions, as well as the numbers, risks and opportunities.
- Get accounting/tax advice on how to approach the purchase
Will you buy the business’s assets? Will you buy its shares? How will you buy them – personally or through a company? How will you decide?
There’s more than one way to buy a business, and a chartered professional accountant can be an invaluable help in determining how to coordinate the purchase in a tax efficient way. CPA’s who specialize in small businesses can also be crucial in valuing the business and identifying key financial strategies.
- Identify financing sources
If your business purchase needs to be financed, what’s the best way for you to get the capital? Our business lawyers recommend shopping around various banks, financing brokers and consultants, as some will specialize in business loans for different industries, such as agriculture, development or logging, and you’ll appreciate the additional support from their expertise.
- Bring on purchase professionals
Once you have the answers to all of those questions and you still want to move forward with the business purchase, it’s time to bring in business brokers and lawyers to facilitate the negotiations.
When negotiations appear to be heading to success, the next step is usually to have your lawyer create and pass on a letter of intent that outlines:
- The price
- The target deadline for completion
- A proposed structure for the transaction
- Important milestones and deadlines such as consent and approvals from key suppliers and/or customers, banks, and regulators
- A non-disclosure agreement to help keep the negotiations and the existence of a possible deal confidential
Once those terms are agreed upon between you and the seller, your business lawyer will then write a business agreement for the purchase and sale (sometimes called an asset purchase agreement or share purchase agreement.)
Depending on complexity, the process can take just a few months or sometimes several months to close the sale. If you are buying, then you’ll want to think about something else: whether to incorporate or not. Read our article 7 Questions to Ask About Incorporating a Business to find out how our business lawyers can help and if incorporating is right for you.
For sellers, many of the steps are the same—save for the massive undertaking of investigating the business and writing a business plan.
Other steps for sellers and buyers include:
- Talk to your family
Long before discussions begin, discuss what this will mean for your family, as members may have ideas about getting into the business, or you and your spouse may need to work out what your days are going to look like with both of you suddenly always at home. (Our business lawyers also refer to this step as ‘how to not get killed by your spouse after selling a business).
- Talk to your accountant
What are you going to do with the proceeds from the sale? What are the best steps and structure for tax purposes? Your CPA will be a terrific asset in determining how to handle these funds in a way that suits your plans and tax goals.
- Discuss Employees
A change in ownership of the business will mean a big change for your team, and you’ll want to talk to the potential buyer at the letter of intent stage about keeping employees. Some buyers may not want to keep the employees which could cost you money. Preserving the employment of the employees who have so greatly contributed to the success of the business employed is often hugely important to the seller. Buyers may want to ensure key employees remain with the company after their purchase takes effect. All of these reasons, and more, make it important for the buyer and seller to talk early and often about employees.
- Clean house
In every sense of the expression, it’s important to get your premises physically tidy as well as your books. The last thing you or the buyer will want is a hidden surprise around quality claims, hidden tax bills, etc., that could hold up or compromise the sale. Our business lawyers always suggest disclosing all information early for a smooth and seamless closing.
Are you looking for a team of reputable business lawyers to guide you through the complex process of buying or selling a business? At Gillespie, senior lawyers walk you through every stage of the process to ensure the best results. 250-374-4463