Terrance Lazaroff on sat 28 jul 07
Re Firesale
This thread has me thinking, which is dangerous. I think buying an
established pottery is a very difficult task. The term goodwill has many
meanings and a clear definition has to be included in the offer to buy as
well as in the terms of the sale. The same could be said about inventory
both equipment and work in progress or work awaiting sale. Then there
would also be the right of copy.
I have listed points that I believe important to consider when negotiation
a sale of a pottery. Feel free to add and debate the list to the list.
If I was buying someone's Potter business, I would surely want to have his
mailing lists and website. I would also ensure that there was a clause in
the purchase agreement that the seller not be allowed to use the mailing
list for any new clay business for two years.
I would ensure that a clause was written that would forbid the seller from
establishing any new pottery business activities in my area for least two
years.
I would also ask that a letter of introduction be written to all his
clients both retail and wholesale thanking them for their support and
introducing me and the new owner.
The sale would include the right to reproduce the all the forms, colors and
themes of previous created work of the business and that the seller refrain
from creating and selling similar forms, themes and colors for two years.
I would also ensure that all the records be part of the business sale.
These records must include the telephone number and business addresses of
suppliers, dealers and purchasers. I would definitely want the list of
retail organizations that he dealt with along with their method of payment
or consignment precentages.
The sale of the business would also include the inventory of all work in
progress and completed work of the inventory in the establishment at the
time of signing the offer to purchase.
Sales of work between the acceptance of the offer to buy and the signing of
the sale contract would become part of the sale of the business. This is
to ensure that the inventory listed in the offer to buy is not sold off
prior to the new owner taking control of the business.
I would ensure that a clause was included to ensure that debt limits be set
and authorized by the new owner to ensure that the seller not create debt
in the name of the business after the offer to buy is signed.
These are just a few ideas that cross my thought when thinking of buying or
selling a business. I am sure there are many other points that should be
considered. What do you guys say?
Visit Terry's website at http:/clayart.ca Last update 23 July 07
WJ Seidl on sun 29 jul 07
Terry:
I've been involved in a "few" sales and purchases of businesses.
I'm no expert however. Laws vary from state to state, and one should always
consult legal and accounting professionals before entering in to any
agreement.
That caveat mentioned, I've commented amidst, below:
Terrance Lazaroff wrote:
> Re Firesale
>
> This thread has me thinking, which is dangerous. I think buying an
> established pottery is a very difficult task. The term goodwill has many
> meanings and a clear definition has to be included in the offer to buy as
> well as in the terms of the sale. The same could be said about inventory
> both equipment and work in progress or work awaiting sale. Then there
> would also be the right of copy.
>
> I have listed points that I believe important to consider when negotiation
> a sale of a pottery. Feel free to add and debate the list to the list.
>
> If I was buying someone's Potter business, I would surely want to have his
> mailing lists and website. I would also ensure that there was a clause in
> the purchase agreement that the seller not be allowed to use the mailing
> list for any new clay business for two years.
> I would ensure that a clause was written that would forbid the seller from
> establishing any new pottery business activities in my area for least two
> years.
>
What you describe is a "non-compete" clause. I've encountered a few in my time.
Two years is a bit too long, a year is usually standard.
> I would also ask that a letter of introduction be written to all his
> clients both retail and wholesale thanking them for their support and
> introducing me and the new owner.
>
> The sale would include the right to reproduce the all the forms, colors and
> themes of previous created work of the business and that the seller refrain
> from creating and selling similar forms, themes and colors for two years.
>
Sorry, that might be illegal unless the current owner agrees to it
specifically. Research "intellectual property rights".
Basically (again, laws vary from location to location) you cannot deny
someone the right to
reproduce items ideas and processes for which they are "solely
responsible in the creation of".
I don't know if you can "sell or assign" these rights. A patent
attorney might be a wise investment here.
> I would also ensure that all the records be part of the business sale.
> These records must include the telephone number and business addresses of
> suppliers, dealers and purchasers. I would definitely want the list of
> retail organizations that he dealt with along with their method of payment
> or consignment precentages.
>
Sellers do not usually allow purchasers access to business records
predating the sale of the business,
except in the form of tax returns, profit and loss and balance sheets
etc. all relating to the operation of the business
Customer and supplier lists are a different matter, but personally, I
wouldn't want anyone having access to business
records from before they bought the business. It's not their concern.
I consider it an invasion of my privacy (how I choose to run a business
is no one's business but mine), and privacy policies may prevent such a
disclosure of client information. Certainly, information of what a
client spent, what form of payment was used, etc.
is usually considered "proprietary" and releasing that information is a
violation of most
privacy policies. Potential buyers should ask for and read carefully
the established business privacy policy, then consult their attorney.
> The sale of the business would also include the inventory of all work in
> progress and completed work of the inventory in the establishment at the
> time of signing the offer to purchase.
>
> Sales of work between the acceptance of the offer to buy and the signing of
> the sale contract would become part of the sale of the business. This is
> to ensure that the inventory listed in the offer to buy is not sold off
> prior to the new owner taking control of the business.
>
For this, the new and old owners should both sign off on a stock inventory,
where such agreements are spelled out in detail. Monies received from
such sales
(which are usually NOT prohibited BTW; as it can cripple a business to
do so) would become part of the business inventory
and not belong to the old owner. A separate accounting is usually
required at closing for any and all items sold, and is listed as a line
item on the purchase agreements. Various businesses and
sellers/purchasers have individual
agreements concerning this. Again, at times, intellectual property
rights enter into this.
> I would ensure that a clause was included to ensure that debt limits be set
> and authorized by the new owner to ensure that the seller not create debt
> in the name of the business after the offer to buy is signed.
>
Conversely, the new owner should not be entitled to establish debt in the
name of the old business owner, or use credit established thus, either
before OR after the sale.
There is a case here now making its way through the courts where a
business seller agreed to allow
the purchaser to use the (credit) card originally set up by the seller
for the business for inventory
purchases during the transition period. The problem is that the seller
(not the purchaser) is the named
responsible party for the debt. After incurring almost $100K in new
debt, you can see where this is leading.
The seller has no legal recourse, since they agreed. The credit card
company holds the named individual
responsible, regardless of any agreement between purchaser and seller.
Yikes!
> These are just a few ideas that cross my thought when thinking of buying or
> selling a business. I am sure there are many other points that should be
> considered. What do you guys say?
>
>
There is an awful lot to consider when buying an established business
with the intent of continuing its operation,
which is why many people simply buy facility and inventory, and create a
new entity; or create a parent corporation and allow
the business to continue as it's own entity but owned by the
corporation. It's far easier.
Best,
Wayne Seidl
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