Where Are the Keys?

You’ve just bought a business.  Your business broker has handled the negotiations of the essential deal terms and has probably also helped coordinate the due diligence review. Your small business attorney has handled the legal aspects and has reviewed the due diligence documents. At closing, you and the seller have signed all of the documents to buy the business. You had no idea it would be such a process and you’re relieved to be through it all, but there are other important steps that you need to consider.

In negotiating all of the deal terms, reviewing all of the due diligence information, ironing out the closing documents, and getting ready for closing, there are items that sometimes fall through the cracks.  While the closing documents legally transfer the ownership of the business to you, the operation of the business needs to be transferred to you, too.  And these are the little things that tend to get forgotten in all of the excitement.

In this blog post, we’re sharing a checklist we’ve created so that the operational information of the business gets transferred to you. It’s easier if these things are handled at closing or shortly thereafter.

  • Change Passwords. Make sure you get all of the seller’s passwords and log-in credentials.  Some of the passwords you may need are: computers, online bank account access, online vendor accounts, software applications, website access, directories, and any other accounts of the business.  As soon as closing is over, you should log into each of these and change the password and log-in credentials.
  • Bank Accounts. If you keep the same bank account for the business, be sure to go to the bank on closing day and change the signatories on the bank account.
  • Utilities.  If the business is keeping the same account for utilities, make sure you update the authorized representative.  These could include telephone, electric, internet, water and sewer services.  Update each account with your new information.
  • Vendors.  Make sure all of the vendors of the business know that you are now the new owner. This could include cleaning services, water/coffee/paper suppliers, insurance providers, trash removal, HVAC servicers, website providers, advertisers and any other vendors the business may have.  You could send them a uniform card or letter notifying each of them of the change of ownership and providing them with your updated information.
  • Notify Landlord. More than likely, the landlord has been in the loop and knows you’re buying the business.  You may have signed a lease assignment or you may have entered into a whole new lease with the landlord.  Be sure to notify them that closing has occurred and make sure they have your contact information.
  • Keys.  So important but this often gets overlooked (believe it or not).  Make sure you get the keys to any office, storage units or post office boxes – and this includes any access codes that are used in lieu of physical keys.  You will probably want to get the locks changed and new keys made.
  • Accountant. Let your accountant know that you have closed on the purchase of the business and ask him or her what steps need to be done to set up your accounting.
  • State Records. You have a legal obligation to keep the business information updated with the State of Florida.  Whether you have formed a new entity or have purchased an existing one, you should update all contact information for the business (including addresses).  You can do this by visiting sunbiz.org.
  • Taxes.  If you formed a new entity, you may have registered to pay taxes already.  If you haven’t, then you will need to register to pay any taxes that are applicable to you.  This could include payroll, unemployment, income and/or sales tax.

While there are many more items that you will need to address when you take over the business, the things on this list are common to most businesses.  They are ‘little’ things that carry a lot of importance, so they shouldn’t be overlooked.

About ELEVATE Business Law

As business attorneys, we support small business owners and encourage you to build a good team of business advisors to help you operate, grow and protect your business. There are many qualified business advisors who can provide the information, feedback and advice you need as a business owner.  At ELEVATE, we provide the legal support needed for small business owners.

 

 

5 Steps to Buying a Small Business

Buying a business is both exciting and scary. It’s exciting because of all of the potential that you see and you’ve probably got several ideas on how to improve the business. It’s usually scary, too, because you may not have ever bought a business before and you don’t know what to expect. Knowing the buying process and having a road map will help you be more confident in your decisions. Here’s an explanation of the 5 steps to buying a small business:

Stage 1 – Gather Information and Structure the Deal. During this stage, you should be consulting with your small business attorney and explaining to him or her what you’ve negotiated so far. In order to put the structure of the deal together, your small business attorney may recommend that you gather more information from the seller, or he or she may recommend that you do some independent investigation. After you’ve got the necessary information together to structure the deal, your small business attorney may create a Letter of Intent for you and the seller to sign. You don’t want to incur the costs of preparing agreements and documents if the seller isn’t on board with the basic terms. A Letter of Intent outlines the basic deal terms and even though it is usually not binding, it gives you reassurance so that you can confidently move into Stage 2.

Stage 2 – Preparation of Agreements and Documents. During this stage, your small business attorney prepares all of the documents needed for you to buy the business. While you may think that the transfer should be “simple” – and we love to keep things simple! – the reality is that the law isn’t simple. There are complex rules that we must keep in mind and be sure to follow, which means that even the most simple small business transfer needs to have the right agreements and legal documents in place. NOTE: If you are dealing with a business broker, they usually have prepared forms for at least one of these agreements. Since a prepared form does not fit all circumstances, it’s best to have a small business attorney take a look at it before you sign.

Stage 3 – Due Diligence Period. During this stage, you really dig in and get to know the business. Most sellers won’t release their confidential information unless a Purchase and Sale Agreement has been signed (or a Non-Disclosure Agreement has been signed). That means that the due diligence period usually comes after the deal has been negotiated and all of the terms have been agreed upon – but it doesn’t have to. Sometimes this stage overlaps and happens at the same time as another stage. Due diligence is your chance to see if the business meets your expectations. You look at all of the financials, all of the obligations, all of the relationships and all of the little details that matter. Not only does this give you the chance to make sure that the business is what you think it is – but it allows you to start getting to know the business and make plans for the transition.

Stage 4 – Negotiations and Finalization of the Agreements. Sometimes this stage comes right after the preparation of all of the agreements and documents – and sometimes it happens after due diligence – but in most cases it happens at both times. Here’s what usually happens: your small business attorney prepares the agreements and documents. The seller’s attorney reviews them and they may want to negotiate some of the terms. Once the agreements and documents are negotiated to both parties’ satisfaction, they are signed. If due diligence happens afterwards, then the agreements and documents may be renegotiated if there is information that is discovered in due diligence that needs to be addressed. For example, you may need to make arrangements for certain accounts receivable or accounts payable.

Stage 5 – Closing the Transaction. This stage is where the ownership of the business actually changes hands. The transfer documents are signed and the purchase price is paid. This can happen at a meeting where all parties are together in person or it could happen electronically. When you get up from the table (or your computer) you will be the new owner of the business. Congratulations!

While these five stages are separate phases of the process, sometimes they can occur out of order and even occur simultaneously with another stage. The important part is that you understand the purpose of each stage and how to buy a business. We want you to be confident and make great decisions!

About Elevate Business + Technology Law
The business attorneys at Elevate Business + Technology Law are dedicated to providing helpful and practical legal advice to small business owners. They offer support and guidance through the process of buying a business as well as on-going advice for small business owners.

This blog post is offered for informational purposes only and is specific to Florida law. For legal advice, please contact a business attorney and discuss your particular needs.