Selling a business is like selling a house – there are 2 primary stages: 1) preparing the house for the market and prospective buyers and 2) actually selling the house. Choosing to sell your business is not a snap decision. You’ve put a lot of time and effort into building and growing your business and you want to recoup that value.
Once you have decided to sell, the first stage is to prepare the business for the market. Just like a house, a little effort into the curb appeal can bring in better offers. Instead of a new coat of paint and fresh flowers, your business’s accounting, legal, and operations may need some updating.
Once the business is ready for the market, you are ready to sell. Maybe you have a buyer already or are working with a business broker. Either way, once you have the buyer in place, you will want to make sure that the business transitions smoothly out of your hands and into new ownership, so you are able to exit and enjoy moving on to your next venture.
For both steps to make sure all bases are covered, hiring business attorneys when selling a business can help the process go smoothly.
Preparing for Market – A Business Attorney’s Inspection
A business is a complex thing to start, build, and ultimately sell. There are countless pieces to put in place before serious buyers will consider taking the reins. Like working with a real estate broker on a home inspection, working with a business attorney before the sale is a great way to uncover issues that may make buyers turn away or ask for a price reduction. The last thing you want is something being uncovered during due diligence and either having to reduce the price to keep prospective purchasers interested, or worse, having the buyer walk away.
Here are examples of matters that business attorneys typically take care of:
- Making sure the ownership is accurately reflected in the governance documents.
- Contracts for current employees, from the rank-and-file up to the senior management.
- Company assets are correctly titled and secured.
- Key business documents like tax records, compliance certificates, permits, etc. are in place.
- Ensuring supplier, sales, and customer contracts are in place.
Business attorneys can also help you gather and compile materials for future due diligence. Items that are often requested from sellers are:
- Governance documents;
- All employee and contractor contracts;
- All non-disclosure and/or confidentiality agreements;
- Leases or other real property documents;
- Loans, liens, and other debt instruments; and
- Contracts regarding operations (suppliers, vendors, customers).
Most buyers will ask for the above information, so it is beneficial for the seller to have this information ahead of time and properly formatted.
Selling the Business – Papering the Deal
When a buyer comes forward and the sale process begins, the seller’s and buyer’s lawyers will have to draft a set of documents to reflect the handshake deal between the buyer and seller before moving on to negotiate and draft the substantive deal. The documents used in the regular course of a business purchase often include:
- Letter of Intent or Memorandum of Understanding;
- Purchase and Sale Agreement;
- Ancillary Agreements, for example financing documents, Transition Consulting Agreements, and Closing Certificates; and
- Managing turning over the due diligence and mitigating any findings from the due diligence.
The purchase agreement is the main document required to sell a business, and many hours and expertise goes into its structure, allocating risks and liabilities, and controlling due diligence.
The purchase agreement includes details such as descriptions of the products and services that are being sold or kept in inventory; the payment terms (e.g., due dates, the duration of the term); a succession plan, and a business-focused transition plan.
These are all matters that a business attorney can counsel you through. Additionally, and perhaps most importantly, a business attorneys will negotiate the terms of a purchase agreement on your behalf so that you walk away with the highest offer for your business.
The above is just the ‘tip of the iceberg’ of what a business attorney does for the seller. Having an experienced business attorney oversee the process ensures a business sale will go smoothly, and should be high up on your list of priorities.
Ensure a seamless transaction and schedule a consultation with Apex Law Group today.