When buying or selling a store, there are things you have to take care of and things you have to watch out for. It is important to have the correct documents and to make sure that the documents are thoroughly negotiated, so that not only can you have the best possible deal, but you can also be sure that nothing will come back to haunt you later. Whether you are dealing with a convenience store, grocery, furniture or mattress store, liquor store, variety store, fashion store or shoe store, make sure you do your homework.
We are a law firm that conducted dozens of closings for people buying or selling stores all over New York. If you are looking for a lawyer to represent you in the transaction, give us a call at 718-509-9774.
Buyers – Perform Due Diligence and Know What You are Buying
The goals of the buyer is are to get the best possible price for the best possible business, to not buy a business with problems or that will not make a good enough profit.
When you are buying a store, you have to make sure that you know what you’re buying. You don’t want to be buying a “cat in a bag.” So you must perform what’s called “due diligence,” which is an audit that may include the following:
Financial Audit – You have to examine the financial documents of the store (income tax returns) and statements from suppliers. It may be a good idea to work with an accountant or an appraiser to appraise the store, to make sure that you are getting a fair deal.
Future Business Volume Audit – Conduct surveillance of the store to make sure it’s actually busy, and perform other research to make sure that the store is going to provide returns on your investment. Changing neighborhood trends may make a store an outdated relic, so make sure that the neighborhood will be able to sustain this type of store in the future.
Competition Audit – It’s a good idea to check what other stores are in close proximity. For example, women’s shoe stores next to each other is a good thing, while men’s shoe stores next to each other may not be so great. Also, try to check how well those stores are doing, it will give you a perspective on the store you’re thinking of buying.
Inventory – Conduct an inventory of the merchandise, check the quantity, quality and age of the merchandise. It will give you information about how fast the merchandise sells, what grade of merchandise and consequently what types of customers, and how honest the seller is about the merchandise and consequently about the entire business.
Regulatory Compliance – make sure the store complies with all local, municipal, state and federal regulations.
Environmental Study – Depending on the type of store you are buying, you may need to check the inventory, regulatory compliance, do an environmental study, and do a market analysis.
Sellers – Get Your Money and Avoid any Further Responsibility
The main goals of the seller is to get the money for the business, keep the stream of payments going if there’s seller financing involved, and avoid any future responsibility for the business.
Escrow the Funds – You do not want to legally transfer the lease and other assets to the buyer until you get the money, but the buyer would not want to give you the money until they get the assets. To facilitate this “money changing hands,” one of the attorneys involved in the transaction acts as an escrow agent. The attorney holds the money in his escrow account until both parties authorize him to release the funds.
Avoid Future Liabilities – The seller wants to make sure that they do not have any liabilities left over when they sell the business. As far as a non-compete clause, if any, the seller wants to make sure that they have a chance to have a business or job somewhere at some time, that it does not completely preclude the seller from doing anything related with their life when the business is sold.
Ensure a Stream of Payments – If you are financing a part of the deal, you want to make sure that the promissory note is correctly executed and that there is a personal guarantee. You may want to check the buyer’s credit before extending this loan to them.
Types of Stores and The Issues They Face
Depending on the type of store, there are various things that need to be set up in the contract stage before the closing, some things during the closing, and for some things you’d need the seller’s assistance for a few weeks after the closing. In some types of stores, it would make sense to agree in the contract that the seller will stay in the store for two weeks to help the buyer with the transition.
Convenience Store or a Grocery – Depending on where you are in New York (especially in New York City), you will need to arrange for licenses in operating a convenience store or a grocery, for things like the Lottery, alcohol and tobacco. Relationship with vendors may need to be transferred to the new owner. Those are all areas where the buyer will need the seller’s cooperation.
Furniture Store or Mattress Store – the inventory needs to be paid for by the seller, with the seller perhaps getting credit for some hard to sell, outdated or damaged inventory.
Liquor Store – needs a liquor license, for which the seller will need the buyer’s cooperation. An inventory will need to be done for the merchandise.
99 Cents Store/Dollar Store/Value Store – in a value store, the amount paid for the inventory may have to be guesstimated. Some merchandise may be credited if outdated.
Clothing Store, Shoe Store or Accessories Store – When buying any store relating to fashion, you have to make sure that you don’t pay for outdated and out of style inventory from last season.
Documents that Need to Be Executed
Once you’re sure that the price is correct and that buying the store makes sense, it is up to your attorney to make sure that your legal documents are in order. Your lawyer will make sure that the rights to operate the store are transferred to you, that you take over the lease or the ownership of the showroom, that a Bill of Sale is executed giving you the rights to the store, that the store name, phone numbers and website are transferred to you, and that any vendor accounts are transferred to you as well.When buying a store, it’s important to have the correct documents.
Contract – states the price for the business, the payment terms, the date of the closing, and other obligations of the buyer and seller.
Amendment to Contract – sometimes the terms of the deal change and the contract can be amended. This most commonly happens with the date of the closing which needs to be pushed back. But it can go as far as changing the price, due to some things discovered during the inspection.
Bill of Sale is an important document that signifies that the buyer bought the business. Think of it as a deed to a house or a bill of sale to a car, except it’s a bill of sale for the goodwill, lease and inventory.
UCC-1 is a document recorded with New York State in case there’s financing on the inventory or assets of the business.
Promissory Note is used if the seller finances a part of the deal. It’s when the seller gets a stream of payments instead of a lump payment. The promissory note often includes a personal guarantee and a lien against the assets of the business.
Minutes and Declarations of the Corporations – both the corporation for the buyer and the seller need to have an official record of the sale or acquisition of the business.
Assignment and Assumption of Lease – the lease is taken over by the new owner. Sometimes the landlord needs an application from the prospective new owner, so don’t put this off until the closing.
Assignments – the store’s phone number, website, email addresses, accounts, etc. need to be assigned to the new owner.
Whether you are buying or selling a store in New York, you need to be represented by an experienced attorney to make sure that you get what you want from the transaction. You can call the Law Offices of Albert Goodwin at 718-509-9774 and speak to a lawyer about your transaction.