When purchasing a business, there are many steps that need to be covered off.

Each deal will have its own specific factors.

That being said, here is a brief summary of the usual process.

The purchase price is usually made up of three things: the assets of the business (such as machinery, fridges, business vehicles etc), the goodwill of the business (i.e. what the reputation and existing clientele of the business is worth in dollars), and stock-in-trade, which are the items currently on the shelves or held in the back storeroom.

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The vendor will usually give a warranty in the agreement on the level of the business turnover during the most recent financial year.

Once the agreement has been signed, you will usually have a chance to review and approve the lease for the business premises (if you are not purchasing the property as part of the deal).

There will also be a period of time for the landlord to approve the assignment of the lease to you.

There may be other purchaser conditions in the agreement, usually a due diligence condition and a finance condition.

If the conditions are all satisfied, you will pay the deposit recorded in the agreement, and make preparations for settlement.

You will need to work through the process of deciding which employees of the business you will be "taking on", who will continue with the business in your employ after settlement.

It is important that the agreement provides for the vendor to meet employee obligations up until the settlement date, such as holiday entitlements.

Prior to the date of settlement, there will usually be a final stocktake, and your lawyer will check that any business assets being transferred to you are clear of any security over them.

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These securities are commonly registered by banks and other creditors of the business to secure their interest in the assets of the business.

It is essential that all assets come to you free of any such interests, particularly if you are using bank finance for the purchase.

Following settlement, and depending on whether this has been recorded in the agreement, the vendor may assist you to run the business for a period of time.

There may also be a restraint of trade clause, preventing the vendor from setting up a business in competition with you.

One final thought- make sure you seek advice from your lawyer and accountant at the outset.

• Richard Small is a senior solicitor at Jacobs Florentine. The information above is general only and cannot replace specialist advice.

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Palmerston North lawyer Richard Small.
Palmerston North lawyer Richard Small.

The writer accepts no responsibility or liability for reliance on, or use of, this article.