Putting Everything Together and Closing the Transaction

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THE PURCHASE PRICE
- No one individual, book or computer program can tell you exactly how much you should pay for the business. However, if you have been investigating the business in question and have talked to a business broker or accountant about the purchase price you should have a reasonably good basis for determining the right price. For example, you may learn that small businesses of the type you are considering generally sell for about one and one-half times their annual gross sales in your market area. That could be VERY useful information if the seller is asking three times last year's gross sales.

DISCLOSURE OF FINANCIAL INFORMATION - At an early stage in the negotiations, specify that you want access to tax returns, books of account, corporate minutes books, and other financial records of the business.

Make it clear that you have no interest in continuing the negotiations unless the buyer cooperates fully in this respect. Also, be sure that this condition is expressed in any kind of informal "memorandum of understanding" or letter agreement between you and the seller that is drafted prior to the final contract of sale.

COVENANT NOT TO COMPETE - In most states and for most businesses, it is possible to prevent the seller from competing against you for a reasonable period of time within specified geographical areas. This is an extremely important provision to negotiate. You must prevent the seller from starting up a new business within a reasonable time and area. Although this is a very unscrupulous and vicious act on the part of the seller, there have been cases where a buyer did not obtain a covenant not to compete from the seller and the seller simply opened a similar business, taking all of the old customers, buying from all the same suppliers and stealing all his former employees and began competing against the buyer, right next store.