Buying a Business? Know Exactly What Is Included in the Deal
Buying a business?
Before focusing only on the price, ask a more basic question:
What exactly are you buying?
A business acquisition can involve equipment, inventory, contracts, intellectual property, customer relationships, leases and other assets or rights.
But not every item associated with the company is automatically included in every transaction.
Start With the Transaction Structure
Business acquisitions can be structured in different ways.
Depending on the transaction, a buyer may be acquiring selected business assets, ownership interests in the company or another negotiated combination of rights and obligations.
The structure can affect what transfers to the buyer and what remains with the seller.
Qualified legal and tax professionals should review the actual transaction structure and documents.
Understand Which Assets Are Included
A buyer should identify the physical and intangible assets expected to transfer with the business.
Depending on the company, these may include:
- Equipment
- Furniture and fixtures
- Vehicles
- Technology
- Websites and domain names
- Trademarks or other intellectual property
- Operating systems and processes
- Other business-specific assets
The purchase price should be evaluated in the context of what the buyer is actually receiving.
Ask How Inventory Is Treated
Inventory deserves specific attention.
Depending on the transaction, inventory may be:
- Included in the purchase price
- Priced separately
- Adjusted based on a closing inventory count
- Subject to other negotiated terms
A buyer should understand both the quantity and condition of the inventory expected to transfer.
Review Customer and Vendor Contracts
A business may depend on important agreements with customers, suppliers, distributors, landlords or other parties.
But a contract does not necessarily transfer automatically simply because the business changes ownership.
Some agreements may require consent, assignment or other steps.
Buyers should identify which contracts are important to continued operations and understand whether they can be transferred under the proposed deal.
Understand the Lease
If the business operates from leased premises, the location can be critical to the acquisition.
A buyer should understand:
- Remaining lease term
- Current rent
- Renewal options
- Assignment requirements
- Landlord consent requirements
- Other material lease provisions
A business purchase does not automatically guarantee that the buyer can continue occupying the premises under the same terms.
Know What Happens to Accounts Receivable and Payable
Another important question is how existing receivables and liabilities will be handled.
Depending on the transaction structure, amounts owed by customers or amounts owed to suppliers may remain with the seller or be treated differently under the purchase agreement.
The buyer should understand those details rather than assuming all cash, receivables or liabilities transfer with the company.
Don’t Forget Working Capital
The business still needs enough resources to operate after closing.
Even if the buyer acquires equipment, inventory and customer relationships, the company may still need cash for:
- Payroll
- Suppliers
- Rent
- Inventory replenishment
- Insurance
- Marketing
- Other operating expenses
Buyers should understand whether sufficient working capital is included in the transaction or needs to be provided separately.
Identify Intellectual Property and Digital Assets
For some businesses, a significant part of the value may exist in intangible assets.
These could include:
- Brand names
- Trademarks
- Domain names
- Websites
- Software
- Customer databases
- Content
- Other intellectual property
The buyer should understand what rights are transferring and whether those rights are properly documented.
Consider Licenses and Permits
Some businesses depend on licenses, permits, certifications or regulatory approvals.
Those approvals may not always transfer automatically to a new owner.
Before closing, buyers should understand what approvals are required to continue operating the business.
Look Beyond the Headline Purchase Price
Two businesses with the same asking price may represent very different transactions depending on what is included.
A buyer evaluating an acquisition should understand:
- What assets transfer
- How inventory is handled
- Which contracts continue
- What happens to the lease
- Whether intellectual property transfers
- How receivables and liabilities are treated
- How much working capital will be available after closing
The details ultimately need to be reflected in the applicable transaction documents.
Know What You Are Buying Before You Buy It
The purchase price tells you what the seller and buyer are discussing financially.
The transaction documents should tell you what the buyer is actually receiving.
Understanding both is essential when evaluating a business acquisition.
EIN Business Brokers provides a starting point for prospective buyers exploring business acquisition opportunities and navigating the transaction process.
Transaction structures, asset transfers, contract assignments, financing, due diligence findings and closing outcomes vary by opportunity. Buyers should obtain appropriate legal, accounting, tax and other professional advice for their specific acquisition. An inquiry or offer does not guarantee a completed transaction.
Frequently Asked Questions
Is everything owned by a business automatically included when I buy it?
No. What transfers depends on the transaction structure and negotiated purchase documents. Buyers should identify specifically which assets, rights and obligations are included.
Is inventory usually included in the purchase price?
It depends on the transaction. Inventory may be included, valued separately or adjusted based on an agreed closing inventory calculation.
Do customer contracts automatically transfer to a business buyer?
Not always. Some contracts may require assignment, consent or other conditions before they can transfer to a new owner.
Why does working capital matter when buying a business?
The acquired company still needs cash to support payroll, suppliers, inventory and other operating expenses after closing. Buyers should understand whether adequate working capital is included or must be provided separately.
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The purchase price is only part of an acquisition. Buyers should understand exactly which assets, rights and operating resources transfer with the business.
