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Outside The Box Items You Can Add To A Business Purchase Agreement

When selling your business, there are always the standard items you include in a business purchase agreement. From a breakdown of assets to the bill of sale. But what can truly be added to a business purchase agreement? You can include multiple stipulations and the fine print to your contract. What are some useful yet abnormal items that can be added to the contract when selling your business?

Items to add to your business purchase agreement.

Things You Can Include In Your Business Purchase Contract

You can include a wide variety of things in your contract when selling your business. But remember, the more outlandish the contract gets, the more difficult it will be for the buyer to sign, so you need to be reasonable and carve out a win/win based on what the buyer also wants. Below is a compiled list of things a seller may want to include in the contract of sale.

Transition Timeframe

When drafting a purchase agreement, it is extremely common for a business owner to remain with the business for a time. Therefore, it is important to have it clearly written how long the transition will take and the specific details of passing the business on to the buyer.

It is important to have this written out in the business transfer agreement because it will be clear and understood by both parties. In addition, this will make the transition of ownership more effective and efficient. You may have this as a separate agreement or include it in the purchase agreement. If there is compensation for the seller, then a separate employment agreement may often be drafted in addition to the purchase agreement.

Remaining On Your Businesses Health Insurance

Some business owners that sell their business want to remain on the company’s health insurance. When writing the business sales agreement, this is something you should consider especially if you will be providing a lengthy transition period. Have you looked into getting health insurance after you leave your business?

Many business owners sell their company to retire. A large expense in retirement is health insurance or Medicare. If you are selling an insurance company, you know the benefits of keeping your business’s insurance plan.

If you have a good health insurance plan at your business, you should consider adding to your contract that you will remain on the business’s health insurance. Remaining on your company’s health insurance after selling your business can save you money and keep your family healthy. Some buyers have been willing to keep the seller on their plan for up to 7 years after the deal is completed. It all depends on what the buyer and seller are willing to negotiate.

Becoming An Employee

Some business owners want to become an employee in their own business. As much as possible, you should spell out what the expectations are in terms of hours and job functions, etc. A good option is for the seller to work full time for a brief period, and then they can work part-time to transition into retirement. We have seen some sellers that have worked into their 80s for many years. They love coming into the office one or two days a week and contributing to the success of their business.

Other sellers want as short of a period as possible but will sign an employment agreement to make the buyer happy.  You should navigate this addition to the contract of sale with a thoughtful eye to what each party wants and needs.

Retaining Access To The Property

Many business owners start their company on their own property. While you can include the property in the business purchase agreement, there are a variety of options. You could keep the property and lease it to the buyer. You could also put a stipulation on the contract that you can still access the property after the sale.  This is particularly true if you have an earn-out as part of your purchase agreement. You want to be able to access the companies books and records to see how much profit they are making and how much is owed to you based on their financial records.

Payment Plan For Your Business

Most business owners want to be paid as much as possible at the closing. However, the buyer typically wants to owe some money after the sale to feel comfortable that the seller has skin in the game to make sure that the transition goes well. In this case, you have a contractual agreement on how you are paid for your business. The way you receive payment for your company is actually important. If you receive a lump-sum payment for your business, you will pay more in taxes. If you receive smaller payments for your business extended over time, you will pay less in taxes. This is an additional benefit to receiving money over time.

Be The First To Know If The Buyer Were To Sell The Business In The Future

You may have younger children who aren’t ready or able to take over the business. The buyer might want to sell the business in the future. You can make it a stipulation that if they ever want to sell the business in the future, you or your family has the first chance at buying back the business. This is not common but may be something to consider.

What is included in the purchase agreement?

Sometimes the buyer will assume the debt of the seller.  The seller’s children or family members may not want to run the business, but they might want to stay employed at the business, and often buyers are eager to have them stay on, so you will want to spell out the expectations of each side. Normally the cash in your business goes to the seller. But there are many other items that may or may not be included in the sale of the business. You can read more about what is customary and what may be able to be negotiated.

Get Help Negotiating The Sale Of Your Business

It is much easier to sell your company with specific stipulations if you hire a business broker. A business broker can help navigate the negotiations and make sure the buyers are okay with the added contractual agreements in the sale of your business. A broker will also help you to manage the emotions of selling a business.

When selling a business, there is a lot of flexibility in what can be added to the contract. Finding the right buyer will simply be more difficult with more restrictions on the sale of your business.

Learn more about the contractual agreement in the sale of a company when you have a professional business broker sell your company.

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