When you have prepared your business for sale (see blog entry “Selling a Business, Part 1”), the next step is to find potential buyers for the business. Options include listing the business for sale with a business broker. There are other forms of advertisement such as online listings, social media, newspaper, and word of mouth. If the business is listed the property with a business broker, the broker and the owner typically sign some form of agreement that describes the terms of listing the property by the broker.
A business sale will include the negotiation of many terms including:
- Financing terms
- Identification of assets to be sold and their value
- Lease for the business
- Operation of the business pending close of escrow (transfer of the business)
- Non-disclosure or confidentiality agreement (“NDA”) about the business
Frequently, the initial terms of the offer are memorialized in a written Letter of Intent (“LOI”) which is signed by the buyer and seller. This document is typically not a binding contract offer but shows intent of the terms on which the parties have agreed. This document is often used as a starting point for the formal purchase and sale agreement.
Due Diligence and Inspection
When you have a prospective purchaser who has signed a nondisclosure or confidentiality agreement and a letter of intent, the buyer will want to inspect and evaluate the business. The due diligence or inspection period in a purchase and sale agreement allows the buyer to examine various aspects of the business including the building, equipment, inventory, employees, financial records, legal contracts and documents and other records.
It is highly recommended that the business owner make all disclosures prior to closing. This will allow for a smoother transaction and attempt to avoid disputes. Items to compile and make available to a serious prospective purchaser include:
- Company books and records including entity governing documents, meeting minutes, company resolutions, ownership certificates, and other records about the organization of the business.
- Financial records and tax returns including profit and loss statements, balances sheets, accounts receivable and accounts payable reports
- Written contracts with customers, clients, vendors, suppliers, distributors, manufacturers and other business related relationships
- Leases for real and personal property including all amendments
- Employee information including salary and benefits
- Company policy manuals
- Forms, agreements and other documents used in the business.
A Written Contract for the Sale is Crucial
The terms of the sale of the business should be in a written contract signed by the buyer and seller. The agreement typically includes the items stated in the Letter of Intent as well as other negotiated terms. There may be additional documents that will be included in the transaction such as a Bill of Sale, Promissory Note, Security Agreement and Lease Assignment. The Purchase and Sale Agreement can be a lengthy written document. Many business brokers attempt to use a brief form contract for the transaction that does not include many significant terms necessary to protect the parties. It is in the seller’s best interest to hire an attorney to prepare a written Purchase and Sale Agreement for the transaction to make sure that the deal terms are clear and that the seller’s interests are protected.
Attorney Guidance is Critical
The goal of the Law Offices of Lisa Wills is to assist business owners in protecting their rights and interests when selling their business. We have extensive experience in advising business owners about all of the steps necessary to sell the business. For valuable guidance, contact us at (925) 463-9000 or send an email.
Lisa Wills of the Law Offices of Lisa D. Wills is a skilled business law attorney in Pleasanton, CA representing business owners regarding their business needs including business sales. For superior legal guidance regarding your business sale contact Lisa Wills, Law Offices of Lisa D. Wills at (925) 463-9000 or send an email.