Many different situations can lead to a business sale or purchase. A company's owner or partner may want to transfer ownership through a business succession plan. An entrepreneur may want to purchase a business that is already in full operation rather than start their own business from the ground up. One business may merge or acquire another business. For each situation, there are specific requirements that must be satisfied. Failure to adhere to the legal requirements and deadlines may result in frustrations that impede the sale or purchase of a business. Working with a business consultant will ensure that your business sale or purchase is completed successfully.
At Empire Consulting Solutions, our business consultant provides legal assistance to startups, business owners, partners, and shareholders. Whether you want to purchase or sell a business, our team will guide you through all the steps and proactively address any issues. Contact us at 281-348-9104 to schedule a free 15 minute consultation to make sure the right procedures are followed.
The Process to Buy or Sell a Business
Despite its size, buying or selling a business can be complex. While the specific process varies depending on the circumstances, some key steps in the sale process exist.
Business Valuation
Both parties should obtain an independent valuation of the business before advertising a business for sale or making an offer. It helps the seller price the business appropriately and gives the buyer a basis for negotiations.
Preliminary Negotiations
Before agreeing on the sale of a business, buyers and sellers enter preliminary negotiations over key terms. This includes, most importantly, price as well as the transaction structure and any preconditions of sale.
Due Diligence
A key step of the process for a buyer is due diligence to confirm the commercial value and viability of the business. Due diligence involves conducting a detailed review of the financial records of the business and other commercial documents.
Drafting Necessary Paperwork
Buying or selling a business involves a large amount of paperwork, including various legally binding documents, such as:
- Letters of intent
- Purchase agreements
- Bills of sale
- Assignment of leases
- Security agreements
- Nondisclosure or confidentiality agreements
- Non-compete agreements
A business consultant can provide advice and assistance with drafting and negotiating the terms of these documents.
Pre-Closing Review
In a pre-closing review, the parties confirm all the required steps have been taken. This includes ensuring any necessary consents and approvals have been obtained – like those needed from landlords or suppliers.
Closing
The sale is typically closed when the buyer pays the agreed amount and the seller hands over any paperwork required to effectuate the legal transfer of the business.
What's the Business Worth?
An independent business valuation is an essential step for both the seller (to ensure they're seeking a realistic price) and the buyer (to make sure they don't overpay).
While it's possible to run some general numbers yourself, many people seek the services of a professional business appraiser to value the business. Business valuation can be a complex process with several different ways to approach it.
A business valuation typically considers a number of factors and business operations, including:
- Business assets
- Future earnings
- Capitalization
- Book value
- Other financial metrics
- Business debts and liabilities
Of course, getting the best and most accurate appraisal will benefit both the seller and the buyer.
Three Legal Issues to Consider When Selling a Business
If you're selling a business, you should be aware of potential issues that may arise. A few of the most common issues often involve the following three situations.
- Confidentiality agreement. During the due diligence process, the buyer needs to have full access to the business's financial and other records. You should ask the buyer to sign a confidentiality agreement before allowing them to view this information.
- Indemnification. The buyer may ask you to indemnify the sale or take financial responsibility for any claims arising from an event that occurs before the close of the sale.
- Continued employment. Buyers will often ask a seller to stay on with the business for some time after the sale and assist with the transition. The specific terms of this should be set out in the sale contract.
It's important to seek advice from a business consultant on these issues.
Three Issues to Consider When Buying a Business
If you are in the market to purchase a business, there are three issues you should consider. Most of these issues involve one or all of the following matters.
- Non-compete agreement. You may want the seller to sign a non-compete agreement to prevent them from immediately opening a competing business.
- Assets included in the purchase agreement. All the assets of a business must be expressly listed in the purchase agreement to ensure they form part of the sale.
- Due diligence. Due diligence is a complex and potentially lengthy process that should be undertaken by a qualified professional to ensure nothing is missed.
A business consultant can provide expert advice on dealing with these issues.
How Will a Business Consultant Help When Selling or Buying a Business?
Whether you're a buyer or a seller, a business consultant can help you navigate the transaction and any potential issues that arise during it.
Importantly, a business consultant can run the necessary due diligence on the sale and help prevent any business disputes from arising in the future.
Contact a Business Consultant Today
If you are planning to purchase or sell a business, Empire Consulting Solutions can provide help throughout the duration of the transaction as well as your next steps after the transaction. Our business consultants will ensure you have fully considered all the matters that must be addressed or may arise in a purchase or sale of a business. Contact us today either online by using our online form or calling us at 281-348-9104 to schedule a free 15 minute consultation.