It is Crucial to be Represented by an Attorney if Selling or Buying any business
Video Transcribed: Tulsa Attorney Isaiah N. Brydie, Esq coming at you with another video. And in this video I’m going to give you a broad overview of some of the things that take place when you’re looking to a windup and sell your business to a potential owner of the business. I’ve handled this a couple of times now with medical marijuana businesses, particularly with dispensaries.
I’m going to be approaching this topic from that angle. So let’s say you get approached by individual who wants to purchase your business, or you are an individual who wants to purchase a business, the first thing that you’re probably going to want to do is retain a lawyer. Just so you know that lawyer can then go in and do an investigation on your behalf and then also a draft up the documents.
Additionally, even if you’re in agreement with the other side on what the transaction is going to consist of, it’s probably best that both parties retain an attorney, even if it’s just for this one transaction and even if it’s just for reviewing documents that are drafted. You want to make sure that your interests are adequately represented. So if one side has an attorney, you should probably have an attorney as well.
So the first thing that’s probably going to happen is your going to enter into negotiations on how the entire transaction is going to work. So whether that’s going to include them just buying the entire business and the property and the inventory in the business, whether or not the business owner is going to extend out a loan to the individual who’s purchasing the business and then that loan is going to be secured by the inventory of the business.
There are a lot of things that can happen that you can negotiate around depending on the circumstances of the situation. Now of course if you are renting the location at the businesses operating out of, that’s a factor that needs to be considered.
If the business has plenty of inventory already in place and this individual was basically purchasing the business as a turnkey, then that’s also something that needs to be considered. If there are discrepancies in reporting or there might be a potential tax liability on the business, those are things that you really want to consider. Also too, just looking at the reputation of the business. If the business has a great reputation in the community, then that’s excellent.
That’s something that you definitely want to purchase. Also too, when it comes to purchasing the intellectual property of the business, are you buying the website as well? Are you buying the name or are you only getting the right to lease the name? These are all things that you need to take into consideration when valuing the business. So you’ll do insurance and negotiations.
Usually there’s an exchange of a P&L form, a profit and loss list so you can basically look at all the obligations of the business, all the cash flow coming in, cash flow going out, how much they pay in expenses, how much they pay out of there. As far as with rent, how much they pay their employees.
Usually when this type of acquisition happens, this is also a good situation to where since we’re already down in the engine block of the business, we probably need to swap some stuff out that wasn’t really working anyway. So whether that be restructuring or maybe hiring on more employees, or maybe pushing some employment tasks and titles together just to cut down overhead and things like that. Really trim the fat of the business since we’re already in the weed with the business anyway.
So are we’re going to want to draft the actual document for how the transaction’s going to take place. A couple of things probably need to happen: if someone is flooding a lot of money towards the business and it’s not necessarily a guarantee that transaction is actually going to happen, one of the things that you probably want to do, and I should’ve mentioned this earlier, probably one of the things that you’re going to want to do is draft what’s called the letter of intent. This is basically a letter basically stating that the two parties are only dating one another.
Basically, when I say dating, I mean that the selling party agrees not to solicit any other potential buyers and the buyer also agrees not to look at any other potential acquisitions other than the business that they’re looking at purchasing for a set amount of time.
They’re really easy documents to draft. They just lay out that for the span of 30 days or something like that, only these two parties are going to have dealings with one another. Even if you had to pay earnest money down, it’s probably a good idea to have that document.
So yeah, I should have put that at the beginning of the conversation. But yeah, my bad. Then from there we’re going to be looking at going into those negotiations like I said. And then from there, we’re going to blow into and actually give an evaluation to the business like I said.
And then from there, we’re going to go into actually drafting the documents that are going to lay out how the acquisition is going to take place. Whether or not the person who was the former owner of the business is going to have some type of ownership interest afterwards.
Maybe they get hired on as maybe a manager, maybe they are a part of the business for 90 days to bring the new owner up to speed on all of the activities of the business, what have you. Maybe you want to add draft a security agreement on the business because you as the owner of the business issued out a loan to the new owner and you want to get your loan that you issued out a secured by the collateral of the business.
Maybe there is a mortgage on the property, and as the purchaser of the business, you want to make sure that maybe you want to assume that mortgage for on behalf of the business or maybe you want to become a guarantor to that mortgage so that instead of the former owner of the business paying into that mortgage, you’re paying into it directly.
These are all things that you want to consider when acquiring a business.