Purchasing an existing business means that the purchaser needs to establish which fixtures and chattels are included in the sale.
Knowing how to define and identify the elements included in the sale will determine fair market value for the business.
The fixtures and chattels along with all the other fixed assets associated with the business will account for a substantial portion of the purchase price of the business in question.
What Are Chattels and Fixtures?
Chattels are movable possessions and personal property. These are usually items that can be removed without injury to the property.
Fixtures are improvements or items of personal property on the premises of the business that are attached to the property, making them part of the building.
Whether a chattel becomes a fixture depends largely on the circumstances. The method by which the item is affixed to the premises and the degree of importance to the property define the item as either a fixture or chattel.
An Inventory is Vital
When chattels are being sold with a business, the seller should provide a detailed inventory.
Businesses such as convenience stores will often transfer the inventory when the businesses are sold.
From the inventory, a detailed accounting of the inventory will need to be done in order to establish the value of the chattels. This should be done by a third party not connected with the sale of the business.
How Chattels Affect Price
The accounting of chattels will affect the overall purchase price of the business in question. The net value of the chattels will be included in addition to the fixtures and other fixed assets involved in the sale.
The business's chattels and fixtures can have a significant impact on the sale; for instance, when purchasing a manufacturing facility, if you do not purchase the equipment to manufacture the product, then the overall value of the business will be severely affected.
The fixtures should also clearly be identified.
Items such as signage can be contentious issues at closing, so having a real estate professional identify specific contentious items such as fixtures will eliminate potential problems with the sale of the business.
Get Help if You Need It
If you are in doubt about any item, then it should be clearly identified in the agreement of purchase and sale. By clearly identifying the fixtures and chattels in the agreement of purchase and sale, you are protecting your investment in the business that you are buying.
A clearly itemized inventory of all chattels will ensure that the items that should be transferred on the closing date of the sale match the items that you have invested in.
By having a real estate sales representative identify any contentious fixtures that could pose problems prior to finalizing the purchase of the business ,you can eliminate costly delays at closing.
