buyers and sellers often worry about goodwill
you'll regularly see a large component in a sale price and it's called
goodwill now goodwill means different things to both
buyers and sellers and they both have their own concerns
so let's have a look shall we what does goodwill mean to both
buyers and sellers
to sell a business a seller needs to confront the need to provide
confidential information to potential buyers
now potential buyers could be competitors or opportunists
looking to get some advantage from the information since competitors are often
the most suited buyer and an opportunist is difficult to
distinguish from a genuine buyer it pays to proceed with care
a standard precaution is to ask interested parties to sign
a confidentiality agreement also called a non-disclosure agreement before
providing that party with any commercially sensitive information
a business broker or your lawyer will usually assist with this aspect
the terms of a confidentiality agreement are typically
not contentious so they're unlikely to deter
any genuine buyers i talk about confidentiality and disclosure in
business sales up here have a look at those
another precaution is to disclose confidential information in
stages the levels of information provided could vary depending on the
type of business and the number of interested parties the
first stage could involve providing basic details such as turnover gross
profit information together with details of
lease of the premises etc the first level of information should
enable the buyer to make a conditional offer the terms of that offer would then
determine whether it was worth proceeding to the
next round of disclosure with that party now this process should
reduce the number of people that see the most sensitive information of the
business to only those who have a realistic
prospect of making the purchase they've made a
conditional offer and lodged a deposit into the brokers trust
account managing this process is essential in
ensuring the sale happens but without damage to the business
something a skilled business broker should be very very good at
the amount of goodwill as a percentage of the total price
varies but it is commonly a significant component
for that reason buyers are often sensitive to the need to ensure that the
goodwill is transferred to them on sentiment
goodwill can be contained in a number of areas of the business
including
now a standard sale and purchase agreement
will often deal with most of these items perfectly adequately
but it's certainly worth reviewing the business during due diligence with the
focus on where the goodwill is concentrated in
the particular business that you're looking at to find out if
the business and consequently the goodwill of the business is
too reliant on the owner's performance have a look at this video up here that
should help in carrying out due diligence on a
business buyers should identify whether there are written contracts and
whether those contracts are capable of being assigned
there may be a case for inserting additional clauses to cover
any issues with the assignment of contracts and include
formalising the old owner's obligations to help
make this happen now contracts can often be relationship
based and sometimes very hard one so it's important that the owners of the
business agree to one or a straight of trade
clause and two how they're going to transfer those
contracts in a general rule the enforceability
of a restraint of trade depends on the scope and scale
the price paid and the amount of goodwill
sometimes goodwill is calculated with a reference to turnover
a buyer will have expectations that turnover will be at existing levels or
better going forward now the seller typically warrants
historical figures are accurate but makes no representation
or warranty about future turnover that can make a buyer
understandably nervous and from time to time buyers will negotiate what's known
as an earn out provision to mitigate the risks
of turnover failing now an earn out provision structures the
deal so the seller only gets more than the buyer's offer if
the business achieves turnover targets post settlement
now whichever route you take preserving the goodwill and enabling the transfer
of that goodwill to a new owner should always be an important
consideration in any business sale thanks again for
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