Okay, so you’ve now done your Due Diligence, and after your inspection of the dive centre and the gear, and your Accountant’s close inspection of the books is all deemed satisfactory.
You now decide that it is all hunky dory and the Buyer was overall relatively honest in their claims, it is now time to move to next step, Exchange of Contracts and Settlement and complete the Deal.
Exchange of Contracts
The Contract for the sale of the business with all the conditions agreed to by you and the buyer is normally written and tweaked specifically to match the specific deal. There are standard forms which are a good start, but all of them will need work. This is normally arranged between each of y0ur Lawyers
Or sometimes it’s really as simple as each of you sitting down with a Microsoft Contract for Sale template, nutting it out and writing it between you.
Anyway, however the contract is put together, both parties sign 2 copies (one for each of them) then a deposit is been paid by the buyer into the trust account of the business agent (normally an Accountant or Lawyer in the tropical destination country).
The size of the deposit is flexible and can be decided between the Buyer and Seller. In the world of large business a 10% deposit is kind of standard. However some dive businesses aren’t really large enough to make a 10% deposit worthwhile (there are costs involved in every single one of these actions with your Accountant and Lawyer remember). Therefore a substantial amount that each side agrees is a good sign of faith is normal.
At this point you have entered into a contract for sale of the business which means that the buyer is committed to purchasing the business and the seller is committed to selling it. No parties past this point can change their minds regarding any component of the transaction, except with agreement of the other party.
What is known as the standard time between the exchange of contracts and the settlement is 4 to 6 weeks. However it can be agreed to be longer or shorter (sometimes even on the same day)
Payment is made on this date to the vendor for the agreed amount less the deposit already paid. The deposit is released from the trust account and paid into the vendors account less agent’s commission and any other fees.
On settlement ownership of the business and all of its assets are transferred to the buyer and from this date all the profits or losses of the business belong to the new owner.
All employee entitlements (Holiday leave, long service leave etc.) to this date will be the responsibility of the previous owner of the business and the new owner of the business will re-employ all the staff.
Lease of premises that the business is occupying will be reassigning to the new owners or their company as well as all rental agreements and all leasing arrangements. This will also happen to all licenses, business name, phone numbers and intellectual property that is part of the business sale.
The Hand Over
In the scuba industry it is pretty normal that after settlement the previous business owner will remain with the business for an agreed period of time in order to assist the buyer with training, operations, introduction to customers and suppliers.
In some cases the owner will stay past this time in a specific role or stay engaged in the business in a consultancy role or similar for a determined payment.
All of these options are negotiable and are normally addressed in the offer and negotiation stage of the buying of the business.
For my view on how to get the best out of the past owner at hand over, see my article “Why and how to hire past owners when buying a scuba dive business in tropics“.