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Hi Can you please explain me the meaning of these topics which I…
Hi Can you please explain me the meaning of these topics which I highlighted in black and their explanation are here which are down the topics? Thanks!
(Course Name: MGN 410 Planning Business Strategy)
Non-Competition Issues
Purchase agreements will often include restrictions that prevent the old owner of a business from entering into any form of competition with the business. These usually specify a geographic range (five kilometres, for example) or a time limit (such as five years). The need for such a restriction is obvious if the business has involved the personal services of the owner. For example, you could buy an automobile repair shop from a mechanic who has a long-standing relationship with most of the customers. Shortly after you buy the shop, the seller could open a competing shop close by, taking all of the customers that you paid for as the goodwill value of the business. Non-competition clauses have to be carefully drafted, because certain laws make any unreasonable restriction on a person’s right to earn a living unenforceable.
Disclosure Issues
You will want to have a disclosure clause in your purchase agreement. This basically says that the seller agrees to tell you about anything that might adversely affect your decision to buy the business. This covers all of the items listed in “Risks of Buying” on page 136. For example, you might buy a successful carpet store where, unknown to you, the two top salespeople had plans to marry and start their own business. Or, let’s say you bought a glass-blowing business where no one told you that the furnace was showing symptoms that it would soon have to be replaced. The idea here is that if the business turns out to be less profitable than expected because of such a problem, the door is open for you to sue the seller. To be successful in your lawsuit, you will have to provide evidence that the seller knew about the problem before the finalization of the purchase deal. You certainly do not plan on spending your time and money to take the seller to court, but it is important to have this clause, because it makes it in the seller’s best interest to tell you everything the seller knows that might even possibly be a problem. The negotiations to buy a business can also involve issues of non-disclosure. For example, if you have expressed interest in buying someone’s business, you expect to be able to see financial statements, customer lists, operating methods, and anything else that will help you assess the business. The seller does not want you to learn all the intimate details of the business, change your mind about buying it, and then tell everything you know to the competition. Therefore, you will likely be required to sign a non-disclosure agreement before having access to confidential information about the company. Non-disclosure can also be required of the seller. If you buy the business, you will not want the seller to reveal confidential information to competitorsincluding the selling price or financing arrangements.
Continuing Assistance
It is a fairly common practice to have the old owner of a business remain with the business as an employee or adviser, often for an extended period after the business is sold. This can be arranged as a condition of the purchase agreement, usually with some fonn of salary payment involved. The old owner is able to help the ownership transition by
training the new owner
keeping the business running and creating cash flow during the transition
introducing the owner to customers, suppliers, and employees to help transfer these critical relationships
Ask yourself: What problems could arise from chese types of arrangements1 It sometimes happens that deals keeping the old owner in the business must be renegotiated to a shorter time period. This is usually the result of personal conflicts that develop between the new and old owners of the business relating to
Supervision of employees. The new owner is trying to establish authority while the old owner continues in the long habit of being the boss.
Changes in methods. The new owner has bought the business with a view to improving things, while the old owner acts defensively to changes, interpreting them as a criticism.
When negotiating for the continuing help of the previous owner, it is wise to leave some flexibility in the planned duration of the arrangement.
