13 Jul Pay Attention to These Three Things When Purchasing a Company
There are a seemingly endless amount of moving parts when purchasing a company, filled with risks, opportunities and complications. Many aspects demand attention, but it is crucial to consider how the debts, employees and intellectual property are handled, as they contribute greatly to the success of the acquisition.
Acquisition of Debts
Common debts that will impact the purchase are, but not limited to, outstanding sales and property taxes, lease, utilities and vendor contracts. Depending on the type of sale, the debts will be handled differently. When buying a company via a stock purchase agreement, the buyer will assume all of the assets and debts of the business. However, a majority of small businesses are sold in asset sale arrangements, which is where the buyer purchases certain assets and liabilities. The specifics of what assets and liabilities are purchased are worked out in contract negotiations, and in some cases the buyer may only take on the assets. Regardless of the sale type, debts still play a leading role in the acquisition.
Future of Employees
A large asset acquired from a business during an acquisition are the employees. Simply put, they are the lifeblood of the company, and maintaining their happiness, loyalty and productivity will be critical to the success of the purchase. Create an open line of communication for the employees to ask questions about their role and future within the company. This will prevent fear due to the large amount of uncertainty created by the transition. In addition to the clear communication, creating and nurturing relationships among employees will be critical to their integration. (To prevent the erosion of morale, integration should be handled in pieces, rather than all at once.) Listen to the teams of employees and work hard to keep them happy, as corrupted morale and culture can be the linchpin of the acquisition.
Transfer of Intellectual Property
Intangible assets, such as trademarks, patents and the general brand, contribute a lot of value to a business. This pushes intellectual property to the foreground as it is a significant piece to the purchase. When negotiating the contract, it is essential to discover the record of ownership of the company’s intellectual property. If it is held in the name of the entrepreneur and not the company, it may not transfer in the acquisition unless specified. Depending on the business, improperly handling the purchase of intellectual property can leave the buyer with a worthless company, or lengthy legal battles.
Purchasing a business is a complex and involved process. To increase the chances of a successful acquisition, work with a professional attorney who can guide you through the process. While handling internal processes, such as employee transitions, may be your area of expertise, having outside assistance from someone who has been through the process before can provide invaluable insight to ensure your new company sees the best chances at success.