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Buying InNeed To Know |
Dear Dave Dear TD Are your expectations of what ownership is and isnt shared by the existing owners? At too many firms the fundamental elements of ownership are not very well thought out or explained and often lead to disappointment and contention down the road. You may think youll be involved and consulted for any significant future decisions the firm may make; the selling principals, on the other hand, may view your purchase as strictly an opportunity for you to enjoy the financial benefits of ownership with little or no real participation in management or decision making. Do you have confidence and faith in firm management and the prospects for the firms future success? How do you feel about others who may also be offered ownership? Are you comfortable with these individuals as partners? If the existing principals are getting up in age, or are singularly important to the ongoing success of the firm, are you convinced they have a credible program in place to smoothly transition themselves out of the firm? Once you understand the nature of what is being offered, look at it in purely economic terms. How much will I pay for the ownership stake being offered? How was the stock price determined? If I make the purchase, from what sources will the payback on my investment come? Will I get a raise? Will I receive dividends or special additional bonuses? Knowing the intended source of the payback for your investment, ask the firm to demonstrate, using the past two to three years of firm financial history, just how the payback would have worked out had you been an owner over that period of time. As a prospective purchaser, at a minimum you should receive the previous two years of firm financial reports. You should also be offered a copy of the firms shareholder buy/sell agreement detailing the rights and obligations of stock owners for review. Read this information carefully and more than once. Dont be embarrassed to ask for clarification or explanation for anything youre not completely comfortable with. Rather than hiring your own attorney and/or accountant as a first step, seek to meet with the professionals involved with putting the documents together in the first place for review and explanation. Your company should not have any problem giving you access to these individuals for assistance. Having done this, should you still have lingering concerns, or if the amount of the overall commitment is terrifying, you may wish to retain your own advisors to confirm your understanding and allay your fears. |
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