As I scrolled through Facebook this week, I was reminded that last year at this time, my family and I were vacationing in St. Maarten. We actually should have been there right now, but instead, we are living in an unknown and ever-changing version of life. Traveling seems like a distant dream.
business
5 Tips For Buying An Existing Business Or Franchise
You were scanning Craigslist or talking to a business broker and found a business you want to buy. It might be a strip mall, a salon or even a franchise opportunity.
- Put a due diligence clause in your contract. Sometimes the due diligence period is done with a confidentiality agreement and letter of intent and sometimes it is built into the contract, where you have a certain period of time (generally, 2 weeks – 30 days) to accomplish your due diligence and you can cancel if you don’t like what you see. If you are about to buy a business, this gives you the time, with confidentiality, to review the books and check out the business. You need to ensure you are going to make the kind of money you expect and the money you’ve been told you will make by looking at the true numbers. If you don’t like what you see, you can get out of the contract. It is very important that your accountant is part of this process. Make sure the seller has paid sales tax and filed quarterly tax returns. If they haven’t, make sure there is money in escrow or it could end up becoming your responsibility to pay.
- Talk to the current owner. They will be a big part of the transition of you coming into the business. Ask them questions like how many employees they have; if those employees are owed any vacation time; if there are employment contracts in place; if there is a union; if everyone has been paid up to date. These are vital in making sure you aren’t walking into anything that will end up costing you money and time.
- Understand your financing options. If you are taking out an SBA loan, know that that process is much longer than conventional financing. Get your documents in place and make sure your contract says the sale is subject to financing.
- Know that buying a franchise is different. The franchise company has to approve you as a purchaser and approve the agreement.
- Review lease and payments. The purchase of a business usually includes a lease. You’ll need to talk to the landlord and also get an Assignment of Lease. If the former owner has been there for quite some time, the rent has most likely gone up. The security deposit paid by the original owner will need to be credited to them at the time of sale and you will be responsible for paying the new security deposit fee based on the current lease rate.
This process can be very exciting, but also stressful. Your own corporate books have to be in order for the lender and as with any major purchase in life, doing your research and having support by your side is the best plan.
You Signed It, They Signed It…But What If That Didn’t Happen? Contracts 101
We sign contracts all the time. In fact, every time you visit a website that uses cookies and you hit ‘accept’ when it pops up or you download an app and agree to the terms and conditions, you enter into a binding agreement.
Contractors, make sure you have the proper licenses in place. If the homeowner does not pay the bill and you don’t have the proper licenses in place in New York, you cannot sue. If your contract doesn’t cover what you are trying to enforce, like extra costs, it might be difficult to recover. If you want legal fees, if you have to sue, make sure that provision is in the contract.
If you are going to agree on something via text or email, save the correspondence. Print it out. If something does go wrong, that exchange can be part of the lawsuit.
Contracts protect both parties. Even if it’s a friend doing the work or you are doing work for a friend and you think you can trust them — when money is involved things get complicated.
Get things in writing upfront and ease the stress later.
Leases
Contracts are vital here. If you are going to lease a property, ensure the tenant knows what is expected of them. If you have a unit and you do not want them to use the basement, spell that out. If rent is due on the 1st, spell that out. If the tenant is responsible for maintenance, make it clear from the beginning.
On the flip side, if you are a tenant, ensure you know what is expected. If the landlord says you can have a pet on the unit, for example, but you don’t have that in writing, it could be trouble later.
Events
If you are hiring a caterer, make sure everything is spelled out in the contract. You don’t want to get an extra bill later because they said they used three extra pans of ziti. Know what is involved, the taxes, gratuity, etc.
If you book a venue, make sure the contract outlines if something happens – what if there is a flood or a power outage? What is the refund policy?
On the other side, if you are a caterer and you expect 50% of the cost upfront and 50% after the event, put it in the contract. If the person does not pay you the balance, you have the signed contract to back you up.
If you are doing linens for an event and they get ruined, make sure the contract outlines added cleaning fees.
You can’t enforce something that isn’t there. Think about all the possible scenarios and get them into the contract.
Freelance Work
Let’s say you are going to cut grass in the neighborhood. Make sure you have something in writing that outlines your costs and how you expect to be paid. It doesn’t have to be complicated. A simple, one-page agreement can work.
If you are the person using the lawn services, make sure there is a contract of what you are willing to pay for work done. You don’t want to find out the person did extra tree cutting without your knowledge and sent a $500 bill.
If you are designing your friend’s wedding invitation, make sure your contract states that they need to approve the final design before printing, so they can’t come back to you with changes that cost you more money.
Cultural Differences
Breach of contract can be different in other countries. Not all cultures feel the same about a verbal agreement. While in some countries, word is bond, that is not the case for others and cannot be enforced in a court of law.
If you are working with someone out of the United States, make sure you are both on the same page (literally) with a contract that fits both of your needs.
A Few Things To Remember
-Contracts do not have to be robust. They can be as simple as a one-page outline. But that document is gold if it’s needed later.
-Add language into your contracts to leave room for modifications. Put something like “any updates to this process may be discussed and changed via email.”
-Use e-sign services for convenience and put language in such as, “an emailed copy can act as an original, etc.”
-Make sure both parties expressly understand the contract before signing it.
If you need help drafting, reviewing or dealing with a contract, call me. I can help at any stage of the process.