Buying over a Sole Proprietor

[SBC]

Good Day Gents

I recently had a call from one of my biggest competitors asking if I would be interested in buying him out?

It is a great opportunity as he has been in the market for 9 years & has a great customer base. He is trading as a sole proprietor.

So what are the risks / pitfalls that come with the purchase of a sole proprietor? What are specific things I need to look for that can possibly work in my favour to negotiate a better deal?

Also how would I go about getting a restraint of trade put against him so that he can't start up after 2 months after the sale?

Any input will be greatly appreciated!!

Thanks

[GillianW]

Hi - will ignore the gents and comment anyway!!

Why does he want to sell? This will give you an idea of negotiable he is going to be. There are people that specialize in selling/buying business and it may be worth consulting one of these as they will have a better idea of what can be hidden /misrepresented in books. If he employs staff you will need to check agreements ito salary increases, bonuses etc.

Restraints of trade are tricky as you can not prohibit someone from earning an income so worth getting legal advise on this. You generally pay someone for restraint in some form or other. If he's emigrating and this is why he wants to sell this will not be such a big deal.

Thanks
Gillian

[BusFact]

Just a point - a bit of a pedantic one at that:

You cannot buy a sole proprietor (that would turn him into a slave ). Instead you will have to buy a list of assets from him. Typically: stock; customer list; brand name; machinery.

[Dave A]

So what are the risks / pitfalls that come with the purchase of a sole proprietor?

On the few occasions I have purchased a sole prop. enterprise, a major issue was a lack of provable financial information. It makes it all too easy to overvalue what you are actually getting - particularly as there is a tendency to include owner activity salaries in the "profit of the enterprise" claims.

Also how would I go about getting a restraint of trade put against him so that he can't start up after 2 months after the sale?

Make sure that the restraint is enforceable (i.e. legal) and in the sales contract.

And make sure your lawyer draws up the sales contract.

[SBC]

Thank you Lady & gents for the feedback.

I will most certainly be using my lawyer to draw up the necessary paperwork! And yes the financial records seem to be an issue as the transactional recording has been a bit slack?!?

[Dave A]

And yes the financial records seem to be an issue as the transactional recording has been a bit slack?!?

Hope you're a good poker player then.