Buying a Business

[XJ75]

I've been sent details of a business for sale, it's a business that I know a bit about and a close family member knows a lot about. I'm not particularly interested in the business as a whole, I think the branding is poor and it hasn't been well marketed, so I would almost definitely re-brand it. The thing I am most interested in is the client list.

My main question is....if I bought the business, what is to stop the previous owners taking the client list and starting a new rival company? This would make the proposition a lot less attractive. Is this something that can be drawn up in a legal contract? If so, how could it be enforced (i.e. even if they sign a piece of paper, how would we ever prove whether or not they have done just that?).

Any other tips or advice would also be welcome.

Thanks.

[Thurbs]

Warranties on activities before they sell. Restrictive covenants on activity after.

If the business is only worth their client list, I guess you are not paying much for it?

[XJ75]

Thurbs said:

Warranties on activities before they sell. Restrictive covenants on activity after.

If the business is only worth their client list, I guess you are not paying much for it?

Thanks for your reply.

We haven't discussed valuations yet but in summary yes, I don't intend to pay very much at all. If that doesn't sit well with the current owner then I will pass on the deal. The company has no physical assets or premises, the website is tired and in need of a revamp (I can do this myself) and as I mentioned before the brand is poor.

[Terminator X]

You often get the Main Man staying behind to avoid the situation you mention for x number of years. Imho their heart won't be in it though etc so perhaps the business will go down the pan anyway. Perhaps if you incentivize them to stay on and do well? Need a signed contract of course.

FYI I "bought" a business from a chap I know when he was due to emigrate to Oz. Within 12 months of him leaving the client base was 95% different.

TX.

[mondayo]

I bought a business a few years back and there was wording in the contract, so that the previous owner couldn't start up a similar business within a certain business or for X amount of time.
It was a relatively moot point though, as he was retiring and we were leasing the premises off him, so he wanted us to succeed.

[XJ75]

Thanks for the replies. Sounds like it's pretty standard practise to get something drawn up in a contract.

The reason I'm so interested in the client list is because it's a business that provides ongoing services to clients, with a lot of repeat business. So while I'm hoping to expand and attract more new business, I'm also hopeful that I will get a lot of ongoing business from the existing client list.

[mondayo]

When we sold up last year, we basically used the same contract we bought with but just changed the names . I'm sure you'll be able to find something relatively cheaply on line too.

[uber]

XJ75 said:

Thanks for the replies. Sounds like it's pretty standard practise to get something drawn up in a contract.

The reason I'm so interested in the client list is because it's a business that provides ongoing services to clients, with a lot of repeat business. So while I'm hoping to expand and attract more new business, I'm also hopeful that I will get a lot of ongoing business from the existing client list.

If you do intend to use a non compete clause you need to consider they may just use a proxy director/staff to get back into the market bypassing any contract you may have.

[Rangeroverover]

Didn't the vendor of Screwfix have his dad or some other relative set up Tool Station.........need a solid non circumvention clause with penalties

[DSLiverpool]

Rangeroverover said:

Didn't the vendor of Screwfix have his dad or some other relative set up Tool Station.........need a solid non circumvention clause with penalties

Yep it was a relative and the contracts need modifying however all are circumventable.

[condor]

Why are the business owners selling? If they're retiring it's unlikely they'll want to start up again.

[johnfm]

mondayo said:

When we sold up last year, we basically used the same contract we bought with but just changed the names . I'm sure you'll be able to find something relatively cheaply on line too.

What could possibly go wrong...