If you are buying a business that includes a sizable value of equipment, then it is advisable that an equipment inspection is performed. Of course, the buyer doesn’t have to inspect the equipment, but it is in your best interest to do so. You want to make sure that the equipment is in good working condition, so that you can pick up on closing day and continue operating the business, as expected.
Part of Due Diligence
When you are buying a business that features equipment as part of the assets, then the purchase contract allows for an equipment inspection as part of the due diligence period. If your findings are anything other than satisfactory, then you have the option of cancelling the contract and receiving your deposit back. Alternatively, you can always attempt to renegotiate your initial terms if the equipment doesn’t stack up to what you were initially expecting.
Can Inspect Twice
Per the Asset Purchase Contract, buyers can inspect equipment during the due diligence period, and then again right before closing, to ensure that the equipment is in the same good working condition as it was at the time of due diligence. It is the buyer’s responsibility to ensure that the equipment is satisfactory during due diligence and at closing. There will be no warranties or guarantees regarding equipment from the seller post-closing, so the buyer can choose to inspect and inspect again, to ensure that they are satisfied with the equipment they are getting with the business purchase. If at the second inspection before closing there is an issue with any of the equipment, it will be up to the seller to repair/replace or give a concession in purchase price to allow the buyer to do so. The equipment just has to be in working order at closing, so that is all that the seller is responsible for ensuring.
At Buyer’s Expense
Some buyers can get confused about who pays for inspections, and according to our Asset Purchase Contract, all inspections and due diligence are done with the cooperation of the seller, at the buyer’s expense. Just like if you were purchasing a home, the buyer would be responsible for finding a home inspector and paying them to conduct a home inspection. The same thing happens with a business purchase. The buyer bears the responsibility and the cost of any and all inspections and/or due diligence.
Use of Professionals
Just like you are free to use a CPA or attorney to help you sort through the financial and operational due diligence, you can absolutely hire a professional equipment inspector to inspect the equipment for you. Of course, it is going to depend on the type of business you are purchasing as to what type of inspector you bring in, as there are specialists in many different areas. For example, restaurant equipment, construction equipment, or trucking equipment. It is the responsibility of the buyer to locate, hire, and pay their chosen inspector.
Schedule Your Inspections
A final thought about equipment inspections: keep in mind, to maintain confidentiality, all inspections would need to take place outside of working hours and be coordinated with the seller at a convenient time for all parties. Always schedule any type of site visits or inspections through your business broker, so that everything is organized, and everyone is aware of what’s happening and when.