Some people are focused on the location or presence in a social media world however a business purchaser should also consider that they are not only taking over the operations of the business and its staff, they may also be taking over contractual obligations to the customers of the business.
A business may have long term contracts to supply certain customers at fixed prices for a certain period of time. There may be volume discounts and tail end incentives that have yet to be provided or rebated to the customer.
The customer contracts may contain penalty clauses wherein circumstances where the business cannot supply the agreed goods or services, the customer can make a claim for loss and damage.
The terms of the customer contract may have provisions that require any change of ownership in the business to be advised and notified to the customer and the customer may then, be at liberty to terminate its ongoing purchase of goods from the business. If the customer is a major customer of the business, then this may cause a significant part of the revenue of the business to decline and cause a dramatic impact on the profitability of the business and its ongoing operations.
Where a customer contract is integral to or forms a major part of the business and therefore a significant income stream for the business, the Sale of Business Agreement may need to have a requirement and obligation on the vendor that the customer contracts are assigned to the purchaser as a settlement term.
Whilst location is important, customer contracts are also an important consideration to review in the purchase of a business.
If you have any queries with respect to the above, please contact our team of Lawyers on (02) 9223 9166 or submit an online enquiry.
