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As a result of a number of queries in this regard we intend today to go over the above topic again.

Although not really a part of our core business; we often get inquiries about either buying or selling a business; and often give legal and financial advice on this aspect of Commercial Law.

As a result; we thought that we could share with you a number of ground rules.

Firstly; unless you have some appropriate qualification or at least some experience in the field; do not try buying or selling a business entirely on your own. There are many pitfalls; and you also need to protect yourself properly. Get professional help and/or advice, at least.

Secondly, one needs to value your business if you are selling; and also to arrive at a fair market related purchase price if you want to buy one. There are a host of questions you need to ask yourself.

What is its market related price? How much would a willing and able buyer be prepared to pay you for your business? How much can I afford to spend and what is the business actually worth to me? The answer to these and other questions depend of a number of factors. What type of business is it? Where is it situated? How long has it been running? What do its financials say about its profitability and short, medium and long terms prospects? What competition does it have? What is the possibility of further increased competition in the short, medium and long term?

One can see straight away that this can be a vexed and complicated decision; namely; to arrive at what exactly is the business worth? You need expert; qualified and professional advice; and it need not cost you an arm and a leg. A business broker, lawyer and/or even an accountant could assist you in arriving at the correct purchase price. They need only be briefed at this stage to give you advice on the correct purchase price for the business. Nothing more.

Thirdly; and only once you have the correct purchase price; you need to decide how you intend to market the sale of the business if you are selling. Try and avoid giving a broker or agent a sole mandate; as this then forces both you and potential buyers and /or sellers to deal with that agent; and only that agent; and invariably involves you, as the seller, in having to pay that agent a substantial commission, which can vary from 5% to 10% of the purchase price; for selling the business for you.

As a buyer try; and deal with the owner direct. Bear in mind that the seller would in all probability have instructed the agent to build his commission into the purchase price.

Some businesses can be advertised and sold by their owners. Find a buyer for the business yourself. This can be done by adverting in magazines, newspapers or on the internet. Sometimes it can even be done by word of mouth. We recently assisted a lady selling her business in the local Mall; where she had simply put a sign up: “Business for sale: Apply within” in her window frontage.

Fourthly; and very importantly; the next Golden Rule is ALWAYS to have the agreement of Sale reduced to writing; and signed by both seller and purchaser. Here again; it is best to get professional assistance to draft the agreement of sale properly and formally; so that you have no repercussions. A voetstoots clause may be important but is not always what it seems because of the Consumer Protection Act.

Again; having a professional draft the Deed of Sale need not cost you an arm and a leg. Negotiate with the agent, broker or lawyer drafting the agreement; and also try to split the cost of this exercise with the seller and/or buyer; depending on which one you are in the circumstances.

We trust your find these tips useful.

Please visit our website at www.legaladviceoffice.co.za or send us an email to This email address is being protected from spambots. You need JavaScript enabled to view it. and we will revert with a reply within 48 hours.

Thank you.

The Legal Advice Office Team.

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Legal Advice Office

South Africa

Kandelaar Street, Vermont, Hermanus
Phone: +27 (028) 316 2832
Email: info@legaladviceoffice.co.za

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