Business purchase contract: top 3 considerations for buyers when purchasing a business
What is a business purchase contract?
If you are looking to buy a business, you will need a contract that sets out the terms of that business purchase. This will include what parts of the business and its assets are being purchased, the terms on which they are being purchased and the legal framework that applies to the purchase.
A business purchase contract is for use when a business is being purchased via an asset sale (and not a share sale). For more information about the difference between asset sales and share sales, read this guide.
However, before proceeding to sign a business purchase contract, you will first need to carry out a thorough analysis of the business being acquired, in order to understand the risk profile associated with the acquisition. Read the section below to find out some key considerations to take into account when purchasing a business.
Top 3 considerations for buyers before entering into a business purchase and sale agreement
As a buyer, purchasing another business and its assets can be an existing way to expand your existing business. However, before acquiring a business and entering into a business purchase contract, there are a number of important considerations that should be taken into account:
1. Financial considerations
A buyer should carefully consider, and analyse, the financial health of the business it is looking to acquire. This may include reviewing financial statements, including profit and loss statements, balance sheets, and cash flow statements. A buyer should ensure that the business’s finances indicate there will be steady revenue growth, profitability and positive cash flow in the future. A buyer should consider hiring an accountant or financial advisor to help analyse the financials and assess the business's value, as this will also be key in determining the purchase price that is agreed upon and set out in the business purchase contract.
2. Market conditions
When purchasing a business, it is important to evaluate the market conditions and industry trends relevant to the business. This will help you understand the target market, competition and potential for growth. Conducting a thorough market analysis in order to assess the business's position and its ability to stay competitive in the future can be key to ensuring full oversight of the business being purchased and its potential. This analysis will also identify any potential risks or challenges that could impact the business's success in the relevant market in the future.
3. Thorough due diligence
To fully understand the risk profile involved in a business purchase, it is important to carry out other checks and investigations (known as due diligence) on a business and its assets. This may include legal due diligence to check the business's contractual arrangements and intellectual property rights ownership, and regulatory due diligence to check compliance with industry-specific or regulatory requirements. Use our due diligence checklist to ensure that you undertake comprehensive due diligence on a business before purchasing it.
What do you need to think about if you are selling your business?
The considerations above are aimed at someone who is buying a business. If you are selling a business, use this guide instead.
How can Docue help? Use our business purchase contract template!
Docue’s business purchase contract template has been created by lawyers - all you need to do is answer a series of questions and you will have a fully tailored business purchase contract that is adapted for your business purchase. And don’t worry if you get stuck along the way, because our lawyer-drafted guidance notes are there to help you through the process.
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Tags: business purchase contract, business purchase and sale agreement, business purchase contract template, business sale agreement template.
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