Business owners generally understand that their business needs to have contracts and agreements in order to protect itself from being sued and having to pay lawyers to defend the company. What is [...]
Business owners sell their businesses for any number of reasons. Regardless of the impetus for the sale, one thing is certain: A sale transaction is a critical point in the life of a small business. It requires a high degree of professionalism, focus, and objectivity. Things can go wrong, resulting in loss of business value and income or even a stalled sale. In fact, SBA data indicate that on average only 15% of businesses that are listed for sale actually sell.
One of the biggest challenges to a business owner that wants to sell is trying to complete the sale alone. On the one hand, selling a business is a multi-step process with numerous moving parts, each of which requires time and focus. On the other hand, most small business owners work in their businesses and can’t stop working to focus on all the things that they would need to do to sell: learning business valuation methods, researching industry statistics, gathering corporate documents, recasting financing data, marketing the business, etc.
These two facts collide and cause the following issues for sellers:
All of these are significant challenges facing the small business owner who decides to tackle the sale of his business alone. They become all the more challenging when you consider that the average time to market and close a business sale can be upwards of 18 months.
There are a number of steps to selling your business. Using a competent business broker and business attorney to help market and maintain confidentiality will help reduce your stress and increase the likelihood that your sale is successful.
☑ Prep work. The broker will gather information on your business, financial statements will be recast to show an accurate picture of the earnings of the business, and a valuation and confidential business memorandum will be prepared for interested buyers.
☑ Marketing. An active marketing effort will begin. Interested parties will contact your broker, and they will sign confidentiality agreements prior to learning the details about your business. Interested buyers are qualified and then invited to tour the business.
☑ Offers and negotiations. Hopefully you will receive offers from interested parties in the form of a purchase contract or letter of intent. Negotiation of the terms and contingencies of the final transaction will be necessary. Contingencies can include lease assignments, loan approvals, due diligence satisfaction, franchisor approvals or other items necessary for the buyer to successfully operate the business.
☑ Due diligence. Before the deal closes, the buyer will conduct a detailed and extensive investigation. Due diligence is an absolute necessity for any business purchase, and, no, it is not just a financial review. The goal is to uncover any risks or dangers that might be lurking behind the curtain. You will be asked for various corporate or limited liability company documents, contracts or agreements that the business has entered, and employee-related documents; you will also assess the full financial records, lease terms, business competition, internal systems and processes.
☑ Prepare and sign contracts. After the buyer has completed her due diligence, you will draft, negotiate, and sign the sale contract and any other transaction documents. This step is vital to your transaction and should not be tackled alone. Once you’ve signed the contracts, you are locked into the terms of those contracts—for better or worse. You should work closely with an experienced business attorney to ensure that these contracts are comprehensive and properly protect you.
☑ Close the deal. The closing is the final step in the sale process where both parties meet to countersign the contracts and other documents that you’ve negotiated throughout the process. All the provisions are reviewed before the parties sign the papers.
The process of selling a business requires a unique set of skills, or rather, multiple sets of skills. Your skill set is business acumen, which is an absolute necessity to run the business effectively. But are you also a financial wizard, legal professional, and real estate tycoon? Probably not.
Throughout the sale process, there will be legal minefields to navigate. You could face intricate securities requirements or complicated contractual provisions that require a skilled legal mind to manage. Going either of these alone can spell disaster for your deal or for its ultimate benefits to you.
Your business attorney will assist at many points in the transaction. Principally, he should be part of the initial offer, he should negotiate and prepare the contracts for the sale to ensure that each document is legally sound, comprehensive, and reflects the unique aspects of your sale, and he should close the transaction with you.
When you sell your business, what you want is a legal advisor with real-world business experience, who can learn about and understand your business interests, and who will give you practical advice to help you accomplish your objectives.
Fortunately, here at Alexander Abramson, we focus exclusively on business-related legal matters. We have advised closely held businesses and business professionals for 25 years at every step of the sale process. We can work with you through the course of the sale process to help you understand and mitigate your legal risks, negotiate and draft the transaction documents, and close the deal, so that you maximize the value of your business.
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