What Are The Most Important Things To Evaluate After My Business Has Gone Through A Merger Or Acquisition?
The most important thing you want to evaluate post-merger or post-acquisition is that the business continuity will go unaffected. The best way to ensure that is to put a clause in the purchase agreement. The clause should state that the prior owner stays on duty at the business for anywhere between 30 days to six months per transition.
When you’re purchasing or acquiring any asset, you want to be sure that the asset will continue to do what it’s been doing. Usually, the company generates a certain income level and you want to maintain that. The best way to ensure the business continues to generate income is by keeping the prior owners on as a transition phase.
At SG Law Group, our due diligence phase enables us to make sure everything is going smoothly. So, if everything goes according to plan, your due diligence will prove efficient, and everything will be good. So other than the transition process, there’s not much else to worry about post-closing.
But sometimes, a situation arises where there could be a liability you were unaware of before the purchase. For example, in the closing phase, we usually need funds to be set aside just for this issue. Standard practice is to keep a certain amount of funds that are in an Escrow account. Should there be a liability that is the seller’s responsibility thrust upon the buyer, these escrow funds are used to pay for those debts.
These funds are not kept in perpetuity. Instead, these funds are kept for a certain period. Usually, the time frame is no more than 90 days to account for unforeseen liabilities. Then after 90 days, if no liabilities have popped up, that money goes directly to the seller.
It’s understandable that with the non-disclosure and the closing documents, sellers will not be forthcoming in how they function the business for obvious reasons. However, you expect that the transition period with the seller will open a floodgate of information so the business can continue without any issues after the transition period is over.
Are Any Compliance Issues Important To Evaluate?
An essential compliance issue that needs to be evaluated is the industry compliance requirements. First, you need to research the industry. If you’re familiar with the industry, you’ll know the compliance requirements. Otherwise, this step is to confirm the business is doing what it’s supposed to do. Generally, confirming the industry’s requirements have already been taken care of in the due diligence phase.
What Types Of Services Does Your Law Firm Handle On Behalf Of Franchise Owners?
At SG Law Group, we prepare the Franchise Disclosure Document (FDD) for our clients. The FDD includes the franchise agreement. Franchisees usually get the FDD from the franchisor. The FDD is a very detailed document that goes step-by-step-by-step through the course of the franchise and helps educate the franchisee.
The Franchise Disclosure Document contains:
- The current state of affairs of the franchise
- What the franchise has and has not accomplished
- The financial information
- The number of franchises issued in the last 2 or 3 years
- The number of franchises they anticipate starting
- How the franchise system works
- What’s expected of the franchisee when they come into the system
- Monetary requirements
- Training requirements
- Esthetics and location requirements
- How to go about the business of the franchise
Most of the states in the United States mandate that an FDD is prepared by the franchisor, filed with the state or states, and also submitted to the franchisees. So, each franchisor needs to have the document prepared, and ensure that it is detailed and includes all aspects of the business. Preparing the FDD can be very time-consuming. Those considering moving into the franchise system want to get ahead of this sooner rather than later.
Unfortunately, many problems with franchisees are that they want to create a franchise and think it’s okay to sell their system to somebody without preparing an FDD. Unfortunately, there’s a process, and preparing the FDD is a very lengthy part of the process.
The Franchise Disclosure Document is very involved. We find that many franchisors get frustrated because they thought this process would be done and over quickly. We usually find out during the franchise document preparation that many franchisors aren’t ready to move to a franchise system.
The franchisor isn’t prepared and doesn’t have a lot of the required things needed to sell a franchise. This is a big hurdle or a roadblock that needs to be dealt with before you can move to the phase of franchising.
Typically, we advise franchisors that before moving into the franchising stage, they should have at least two separate locations or two different business functions in other areas. This way, they can see how business is in different areas and locations.
Having multiple businesses in multiple areas allows you to shuffle things around, work through, and test things. If you don’t go with the multiple-location suggestion, you could jump the gun and end up having more problems than solutions.
Unfortunately, at SG Law Group, we have seen the lack of preparedness happen with many franchise systems. The owners got into the franchise game a little too early. As a result, they put themselves at a disadvantage. Sadly, many potential franchisees either walked away or never signed up because they knew or felt the franchisor did not develop the system properly.
With the guidance of a skilled Mergers & Acquisitions Law attorney, you can have the peace of mind that comes with knowing that we’ll make it look easy.
An initial consultation is your next best step for more information on Important Things to Evaluate Post-Merger Or Acquisition. Get the information and legal answers you seek by calling (786) 788-8756 | (786) 788-8982 today.
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