Buying Into Small Business: The Sales Agreement

So, you've made it through some of the economic rough patches and are about to dive into ownership of your new small business. Before you get there you're going to need a solid, tidy sales agreement.

The Sales Agreement is one of the fundamental legal documents in purchasing your small business. Your first step should be developing a written copy of the sales agreement that you and the seller have agreed on. Once the written draft has been double checked and all the loose ends are tied away you need to have your lawyer review the agreement and draft a new version. If you take on the challenge of drafting the sales agreement on your side of the deal you're more than likely going to end up getting most of what you want, rather than submitting to all what the seller wants.

In your sales agreement you need to define everything that you intend on purchasing including assets, customer lists, intellectual property, etc. Important clauses to include in the agreement are:

• Names of the Buyer, Seller, & Business
• Background information (about you, the seller, & any businesses you each currently operate)
• A list of the assets being sold (to you)
• Purchase price & Allocations for the individual assets
• Covenant not to Compete - the seller agrees not to compete directly or indirectly with you in an operation of a similar business located close by
• Adjustments - take into account the costs of rent, lease agreements, employee wages, maintenance contracts
• Terms of Payment
• A list of all inventory included in the sale
• Representation and warranties to the buyer and/or seller
• Access to Information - Cover your right to obtain access to any information about the business & its records
• Contingencies - this is your safety net that allows you to decline the sale if things don't work out in your favor (i.e. - If you were buying a bar, you might include that the sale is contingent only if the state transfers the liquor license in your name.)
• Seller as a Consultant - you may want to keep the seller around for a short time to advise you and ease any stress in your transition into the business
• Fees - any broker or miscellaneous fees involved in the sale
• Closing Date - list all the documents & other actions to take place at the closing date

Unfortunately, purchasing your small business is not as simple as writing a check and handing over the keys. Follow these basic guidelines in drafting your sales agreement and obtaining your small business and the process will go over smoothly with no room for error or misunderstanding.