Mergers and acquisitions are an excellent way to establish business in a new region or to grow your current business network. Mergers and acquisitions can often be a multimillion dollar affair, causing steep financial consequences if done incorrectly.
Because of the high cost of mistakes, it is imperative to avoid some of the biggest problems that may arise when purchasing or combining another business. Due diligence and creating a good sale agreement are among the most common oversights that can lead to legal and financial difficulties between buyer and seller during this delicate process.
Good due diligence
Before you decide to buy a company, it is important to have a clear understanding of the overall situation. It is important to be familiar with what is owned, has been borrowed, leased, and is owed. It’s simple enough, but it can lead to disastrous mergers or acquisitions. A business’ success does not necessarily mean it is without problems.
Some of the most important things to be familiar with are:
- Organization and leadership structure
- State and local taxes
- Special environmental regulations
- Employee payments and benefits
- Liabilities
Being familiar with some of the smaller things can ensure you aren’t blindsided by extra costs or liabilities.
Favorable sale agreement
Issues can arise when expectations are not contractually obligated. It is important to create a sale agreement that stipulates who is responsible for what. Not properly drafting how intellectual property ownership is to be transferred, for example, is likely to lead to significant losses of income.
As mergers and acquisitions can be a drawn-out process, it is important to create a timeline for significant events, such as when different assets or liabilities are transferred from the seller to the buyer. Creating a detailed sale agreement can help both parties avoid complicated financial pitfalls that come from small legal loopholes.
