You’ve taken the steps to purchase an existing business or open a franchise. With a business foundation already in place, you’re excited to take the business to the next level, but before you complete the purchase, you need to protect your interests. The best way to do this is with a business purchase agreement, and if you’re not familiar with this document, our CPAs are breaking down what this is and what you need to look for.
What Is a Business Purchase Agreement?
A business purchase agreement is a contract in which the ownership of a business goes from one party to another. Also called a business transfer agreement, this contract dictates the terms of sale, purchase price, and all the assets and liabilities transferred from the seller to the buyer related to any type of business, from a retail shop or restaurant to a law firm or manufacturing business.
What Is Included in a Business Purchase Agreement?
The contract is comprehensive and includes:
This includes the purchase price, any deposits required from the seller to the buyer, as well as the date and time the transfer takes place.
An existing business has assets, and the purchase agreement dictates what assets the seller is including in the sale. Common assets are equipment, inventory, company vehicles, and copyrighted material. The sale may or may not include the cash in the business bank account, so it’s important to ensure whether it is included or excluded in the agreement.
Debts and Liabilities
The buyer typically assumes any liabilities and debts the business has, such as a loan on a vehicle or outstanding invoices.
Warranties and Guarantees
Warranties and guarantees include that as of the closing date, the premises and equipment are compliant with government codes and regulations, the taxes are paid, and the building lease is paid up to the point of transfer. This guarantees that the buyer is entering into a good faith agreement with the seller.
These are prohibitive statements that protect both parties and often include a non-compete clause so that the seller won’t open a new business competing directly with the existing business, as well as non-solicitation, confidentiality, and non-disclosure.
Why Is a Business Purchase Agreement Important?
A business purchase agreement is a complex document, but buying an existing business is not a simple transaction. This document specifically lists the assets and liabilities transferred from one party to the other, including non-concrete or intangibles, such as intellectual property. This protects you from purchasing a business and, upon taking possession, finding the equipment was not included or all the client files are erased – things you assumed would be included were not, leaving you in a challenging position from the start.
Having a contract in place ensures both parties are acting in good faith, and ensures that you have a clear vision of where you are starting, debts and assets included.
Schedule a Consultation with a CPA in Raleigh Today
If you are planning on purchasing a business or have recently purchased one, we have CPA firms in Durham and Raleigh that can help. From drafting a business purchase agreement to ongoing services, including helping you make smart financial decisions, assisting with bookkeeping, and reducing your tax burden, we are by your side on your path to success. Schedule a consultation today at (919) 493-2603 or by filling out the contact form below to get started.