Tips For Selling a Business
When you are planning to sell a business, there are a few keys points to remember. Many “simple” business sales have resulted in needless and very costly lawsuits due to lack of protection and guidance.
1. Understand the Value of Your Business
This may sound simple, but you don’t want to sell too low. With the internet, a vast amount of helpful information can be obtained at little or no cost. With this information, you can enlist help in valuing the business (see below discussion on valuation professionals).
2. Consult with Appropriate Professionals Early
Depending upon the complexity of the transaction, you may need to consult with a CPA/Accountant, business broker, real estate broker or agent, and lawyer. Sometimes, you may need the help of an expert in your own industry. Yes, it does cost more. However, mistakes in complex transactions like the sale of a business can cost a lot more.
3. Make Sure all Representations You Make about the Business are in Writing.
Verbal representations, while typically expressly excluded in most purchase and sale agreements, are one of the most common reasons buyers sue sellers. Don’t overstate or hide critical information. If you make representations about the business or its performance, be sure to have (and keep) the backup information supporting the representations (like annual gross sales, average monthly expenses, etc.). Your agreement should clearly state that the buyer is not relying upon any verbal representations and is only relying upon what is in the agreement or other identifiable writings acceptable to you.
4. If you Plan to Carry Back Paper (Loan Buyer Some Money), Get Adequate Security.
If you plan to loan the buyer part of the purchase price money (and it is a significant amount), obtain security for repayment in addition to the business itself. The buyer may run the business into the ground before they default on your loan, making that security less valuable. Additionally, make sure the buyer is financially capable of purchasing the business before you invest a great deal of time and money in the negotiations and documentation of the deal. Check their background and references if possible. There is nothing worse than a buyer taking possession, making a few payments, and then they just stop making the payments and “create” some phantom breach of the agreement by you, the seller!
5. Have the Buyer Inspect the Business and its Operations.
The buyer should thoroughly inspect all aspects of the business. Get them to sign off that they have inspected the business and understand everything. Make them represent that they have had all opportunities to do any kind of inspection they want, or are waiving that right. If they have a professional inspection, it is better. Be sure to get a copy of the inspection report.
6. Use a Reputable Escrow Company and Adhere to the Escrow Instructions.
The closing of the transactions should go through a neutral third party escrow. Do not verbally agree to waive items during escrow. Document everything. Have your professionals assist you with the escrow instructions as they are very important.
7. The Transaction has to be Clearly Documented in Writing with a Purchase Agreement.
Be actively involved in this process. It is not all “boilerplate”. This is where your professional assistance can be most valuable and save you big headaches later. Don’t let them “kill the deal”, but listen and understand their recommendations during the process so you are making informed decisions.
8. Obtain Copies of all Closing and Transaction Documents.
Keep complete and clear copies of all the documents. Keep them in a safe place. Keep and extra copy somewhere away from your office or home for security. If you have any questions or concerns before signing the final documents, speak up and make sure you understand the ramifications of the issue. Then, enjoy the fruits of your labor and the proceeds of sale!
