Buying an Existing Business, Like Some Advice

[dmccrostie]

A month or so ago I posted a message asking what to look for when purchasing an existing business, and I got some excellent, helpful, well thought out responses. I am very close to working up a contract with the retiring Agent. In fact I am meeting my Lawyer this coming week.

My question is probably many faceted but here goes: "What would you ask for in a contract?" I know I get his book, and his office furniture, equipment, phones, computers etc. I know that I will add a Non compete clause for a period of time. I am thinking about adding a clause relavent to retention - if policies are canceled within a certain time frame, then he pays me back for them. What am I missing, and thank you all in advance for your answers.

Dave

 

[Crabcake Johnny]

What kind of book? Health, life, P&C?

 

[HarryRenard]

A non compete would be obvious, but he cant guarantee that all his customers will stay, even he has clients leave from time to time. Really no business can.
So I highly doubt he would pay you for cleints leaving.

You are really just purchasing a list with a lot more information on it which will give you an upper hand.

 

[Brandon Lewis]

I know you asked about a contract, but I have one piece of advice. Stay in contact with the owner after he retires. Stay on his good side (hopefully you currently are). You never know what issue may arise in the future that will be solved much quicker if you can just call him up. You never know what question may arise in the future that only he has the answer to.

So while negotiating this contract, try to keep it beneficial for you and him so that you can retain somewhat of a decent relationship just in case something happens. Don't lead him to believe that you are trying to stack the odds against him. Didn't say you are, just saying make sure he doesn't think that.

 

[Powder]

When I bought a financial services book of business last year I included a clause that specifically stated the previous owner was responsible for any errors/omissions etc. that occured prior to me purchasing the business. I didn't want to be on the hook for something he did. Not sure if this would hold up in court if something does happen but none the less I had it included.

In future acquisitions I would pay part now and part a year from now. The amount of the future payment would be spelled out ahead of time but would be based on a % of client retention (trails, not # of clients). That way if everyone moves their business your not paying for something that is worthless and you don't have to track him down to pay you back. This also gives the buyer an incentive to talk you up to his existing clients and almost guarantees that he won't go out and start up another agency right away. You can't expect him to wait forever for the rest of the payment but one year for a portion of the purchase price isn't unreasonable. Actually, for tax purposes this could actually be beneficial for him.

 

[justing]

What I have heard of people doing is using a transition period. This would allow you to meet and work with the current clients while the owner is still there and hopefully this will help them become more comfortable with you taking over. This should reduce the number of lost clients.

 

[Brandon Lewis]

What I have heard of people doing is using a transition period. This would allow you to meet and work with the current clients while the owner is still there and hopefully this will help them become more comfortable with you taking over. This should reduce the number of lost clients.

This is exactly what I was thinking. Great advice. The key is you want the owner to be around for a while. You are taking over his family (business) and no one knows his family like him. His kids (clients) are getting a new father and you don't want them kicking and screaming saying, "No. I want my daddy." Keep daddy around until they get used to their new daddy (you) and you should be ok.

 

[dmccrostie]

The wind up is, I went to a friend who's an attorney (an oxymoron?). He provided a 37 page Asset purchase agreement, which covers all you've mentioned above. The former owner will stay on for a period of time while we transition the business, then may go into the financial side working out of my office. All positive in my book. Thanks for all the advice folks. I close on this tomorrow. Nervous and excited.

Dave

 

[xrac]

The wind up is, I went to a friend who's an attorney (an oxymoron?). He provided a 37 page Asset purchase agreement, which covers all you've mentioned above. The former owner will stay on for a period of time while we transition the business, then may go into the financial side working out of my office. All positive in my book. Thanks for all the advice folks. I close on this tomorrow. Nervous and excited.

Dave

Good luck!

 

[DS4]

I went to a friend who's an attorney (an oxymoron?). He provided a 37 page Asset purchase agreement...

37 pages? Really? I have bought two small blocks and I believe the agreement was one or two page. I can email you a copy if you like?
I drew it up myself. No attorney involved. Attorneys always want to make something simple look involved so they can justify their fees. The non compete is the most important clause.