Whether you are established in the manufacturing industry or looking to enter it for the first time, buying an existing manufacturing business can be an excellent investment and growth strategy.
As with any industry, there is a range of legal factors that you need to consider when it comes to buying a business, so it’s an excellent idea to get advice from a legal professional before purchasing.
With that in mind, here are a few things to do when buying a manufacturing business:
The most important part of buying any business is to know exactly what it is you’re paying for. This means thoroughly checking all the details of the business and ensure the numbers add up. It’s in the vendor’s best interest to sell the business for as much as possible, so you need to make sure that everything they tell you is accurate.
Undoubtedly, you will need to look over and analyse numerous documents. Also look at how well the business is positioned by looking out for competitors in the area, and if most of the business’s revenue comes from one or two large clients, think about what would happen if the business lost those clients?
Thoroughly check all equipment, machinery, and stock
The value of the plant, equipment and stock that you’re purchasing as part of the business will be a big part of the overall cost, so you need to make sure you’re paying a fair price for the assets you are receiving.
Make sure you check the age and condition of all machinery, the quantity and quality of all stock, as well as intellectual property items such as the business website and any patents. Don’t just take the seller’s word for the value of these items (remember, they’ll want to get the best price they can for them). If necessary, you can get these items inspected by a third party.
Make sure you have any necessary certifications
The manufacturing business you’re planning to buy may need certain permits or certifications. If the business involves packaging food and beverages, there may be certification requirements to ensure this is done safely. Make sure you check the relevant legislation that applies in your industry and state.
Disputes and dispute resolution
Disputes can arise for a number of different reasons. Typically, these relate to facts about the business and how much it is worth. Some common examples include:
- About takings: where the vendor may have asked clients they are friends with to make extra, large orders during the due-diligence period to boost takings, or the vendor may misrepresent what the takings are.
- About stock and stock valuation: where the purchaser was expecting more stock, or the contract was not sufficiently clear as to how stock will be valued.
- About what is being sold: sometimes a poorly drafted contract won’t be specific on intellectual property such as business names, websites, logos and patents.
The best way to avoid any dispute arising is to have a business lawyer draft documents as well as thoroughly check the contract and all other documents before you finalise the purchase.
If a dispute does arise, a lawyer can help you resolve it. They will be able to advise you on the best course of action for your situation, including which avenue of dispute resolution is the most appropriate.
This can be the most important part of the process. If you’re unsure about anything, your lawyer can point you in the right direction, and, as mentioned above, they’ll be essential for drafting and looking over important documents to ensure everything is as it should be.
When you’re buying a manufacturing business, get the advice of a good business lawyer. They will be able to help you through every step and can ensure that nothing is missed or overlooked.
About the author: Rose Lawyers & Conveyancers have been helping clients buy and sell businesses for more than 35 years.
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