Business Brokers BC Blog

Issues that arise and require attention during the due diligence period.

Tuesday, January 12th, 2010

The Lease.  Is it assumable?  Need to review the entire (often very lengthy) document and all the different clauses.  Is there a demolition clause?  Some buyers are indifferent to this for others it is a “deal breaker”.  Can purchaser satisfy (credit) requirements of the landlord?  The meeting between a new owner / tenant and landlord is often times an appropriate time to re-negotiate the entire lease.  Keep in mind this is an added cost and can be a considerable headache for the purchaser.  If not managed well the issue can push a buyer to decide not to complete the purchase of the business – it becomes the straw that breaks the camel’s back.  For some people it becomes just too much negotiating.  The issue of course becomes a lot easier when the Seller is the landlord as there is no new third party to negotiate with.

Franchise Agreement.  Is there a transfer fee involved?  Who pays?  What about training?  What is the cost?  Where does it take place?  Sometimes a new franchisee has to go away for two weeks to another part of the country.  Be absolutely clear on all the terms involved.

How do you deal and account for work in progress? This is part of the working capital that gets transferred over at the closing date when the sale of the business includes the operational balance sheet.  How this is accounted for and monitored is very important as it can be a substantial adjustment at closing.

Gift certificates.  How many are outstanding?  How do you monitor them as not all may be redeemed.  When are adjustments made and how will the new owner be compensated once he provides the goods (for which he has not received the payment) – it was a benefit the past owner enjoyed.  The costs are sometimes offset against (vendor) financing mechanisms.

Employee issues. When a new owner takes over a business with existing employees attention must be paid to the employees that are staying.  What obligations will the new owners have to them?  Holiday pay?  Bonuses?.  What happens if a new owner does not get on with the existing employees and decides to let them go?  New owner is obligated to pay for a period of notice.  Be careful about claims for unfair dismissal.

Bookmark and Share

Comments are closed.