How to Ensure that Assets are Delivered Free and Clear
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Question:
My partner and I have reached a tentative agreement on a purchase price with a seller. We agreed to a number less what they owe on their vehicles and less what it will cost for us to replace one vehicle. How do we put it in writing to protect us from spending more than we need to if there are other "assets" that are not paid off? Once we get to the due diligence phase, can we change the purchase price if there is more owed?
Answer:
First of all congratulations on having reached a tentative deal with the seller; this is a major first step.
I will recommend that despite my comments, you absolutely need to have any verbiage or conditions that need to be included in a purchase agreement drafted by your attorney.
The purchase agreement will contain certain representations, warranties and conditions for closing. One of these will be that the seller will need to provide proof of free and clear title to any of the assets not specifically identified that you will take over payments.
If, however, you discover in your due diligence additional assets that are not paid off, then of course the purchase price, deal terms, etc. can be modified accordingly.
The goal of an effective due diligence is to validate what the seller has represented and to allow you adequate time to review all of the other key issues of the business including: assets, customers, competition, company strategy, employee issues, legal and corporate matters, leases, contracts, etc. It would seem only natural that any business owner would know prior to due diligence what equipment is paid off and what isn’t. If you find too many of these outside of what you were told, one has to question the seller’s basic level of honesty and disclosure in the entire transaction.
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| Get more expert advice in Richard Parker's How To Buy A Good Business At A
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Richard Parker author of: How To Buy A Good Business At A Great Price(TM), the most widely used reference resource and strategy guide for buying a business. He has purchased ten businesses in his career and has helped thousands of prospective buyers worldwide learn how to buy the right business for sale. He is also founder and President of Diomo Corporation - The Business Buyer Resource Center. Richard Parker is also the author of BizQuest's Business for Sale Blog |