Overview
Buying a business is seldom a simple process, typically involves the expenditure of considerable amounts of time and money, and always involves risk. No money down acquisitions are a rarity, and if it turns out that you’ve made a bad deal, and fail to realize that until after close, the chances of adjusting the price and terms, or getting your money back are slim. In reality, to have any reasonable chance of obtaining adjustments to price and terms, or a refund of some or all of your down payment after close of escrow, you will need to engage legal counsel to litigate the matter on your behalf and that typically involves the expenditure of real money. In addition, it is common knowledge that when litigation is involved, the outcome is seldom predictable. To make litigation even more potentially expensive, California law provides that the loser of the litigation typically pays the winner’s costs of litigation in addition to the loser’s own costs of litigation. That can really hurt if you’re on the losing side.
While the magnitude of risk involved mainly depends on; (1) the circumstances of the target business at the time of acquisition, (2) the agreed upon price and terms of the deal, and (3) the loan arrangements (whether or not outside financing is involved); a buyer can successfully mitigate risk by becoming knowledgeable about the subject business and the acquisition process, and by engaging competent professional advisors. Knowledge of the business and the circumstances relating to it at the time of acquisition are the keys to successfully minimizing buyer’s risk and can be achieved through both the buyer’s independent research and the assistance from experienced, specialized professionals, including (but not limited to): (1) business brokers, (2) mergers and acquisitions (M&A) advisors, (3) business valuation consultants, (4) specialized business acquisition attorneys, (5) CPA’s specializing in business acquisitions and (6) due diligence professionals. At the very least, an intelligent buyer needs to know exactly what assets are being purchased, the condition and market value of those assets and the implications of available forms of financing before making an offer. In addition to gaining the aforementioned knowledge, the prudent buyer needs to conduct an analysis of the business’ strengths, weaknesses, opportunities and threats. To enter into a transaction to purchase a business without properly researching the business and acquiring sufficient knowledge about it before making an offer, is to risk substantial financial loss.
In the situation, where a buyer purchases professional services in conjunction with the acquisition of a business from someone independent of the seller and / or seller’s broker, those services solely benefit the buyer. If brokerage services are involved, the buyer’s broker normally represents the buyer’s interests only and the seller represents him / herself, or employs the services of an attorney and / or seller’s broker as the seller’s exclusive agent.
