Business Purchase Gone Wrong

You decide to purchase a business– either to consolidate the market, or enter into a new venture. After a hard fought negotiation and many wrinkles in arranging for financing, it’s now time to close the deal and take control of your new expanded enterprise. In some cases, this is where the headache begins.

After the purchase of your brand spanking new shares, in an old existing company, you realize—oh, lets say– the sales aren’t as robust as what was represented in the financial statements; the clients do business with the company in a way that doesn’t match what was written in the 10 year old contracts and some of the inventory isn’t exactly in the same condition as warranted and the key employees aren’t exactly as knowledgeable as you had been let to believe. You also realize, what you received, isn’t exactly what you hoped to get.

What to do now? Sue, sue and sue you say! Well hold on. Before you go spending good money on a lawyer, go into the discussion with some basic knowledge. Consider this:

a. is the purchase price to be adjusted after the closing to reflect actual vs. projected revenues;

b. does the agreement limit the amount of damages you can recover for the various breaches of the representations and warranties;

c. are there any notice requirements in order to trigger your remedies;

d. can you quantify the damages you have suffered;

e. were the assets bought “as is” and did you obtain an independent appraisal;

f. are you still in time to commence a claim; and

g. do you still want the company

If you really want to be a superstar, keep a diary from the first day you take control of your brand spanking new shares. Take the time to:

a. have your key staff keep a log of performance issues and the costs incurred to rectify those issues;

b. have your accountant review the existing financial statements in order to determine whether they accurately reflected the fiscal position of the company;

c. conduct your own inventory review in order to determine whether what you purchased is still there; and

d. Speak to your key customers and suppliers in order to find out whether the existing business relationship is any different than the one you thought existed based on the written contracts.

It’s important to get what you paid for (assuming you still want to own the newly purchased company). To do so however, you need to act quickly, be organized and have an understanding of both what you expected to receive vs. what you in fact received.

Read More: BUSINESS SENSE: Commercial Lease Enforcement & Remedies

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