Several reasons can make a person want to sell their business. It could be that they want to change to a new career or a change in personal situations or because their business is not picking as they expected it to. Whichever the reason for selling, you’d want the sale to be as quick as possible.
However, before you list your company for sale, you should understand how business sales work first so that you can ensure a smooth process for both you and the buyer.
Business Sales Overview
Many decisions are involved in this process. And you are mandated to state all aspects of your business into a formal sales agreement that will be signed by you and the purchaser. But, stakeholders need to agree on key issues before finalizing the process. Although some issues may seem insignificant, they can lead to stress and delays if not addressed early. Some things you should agree on include;
- Tools included in the sale
- Contracts that will be transferred like phone numbers, client management software, agreements with clients, and leases
- Stocks to be included
- The training you’ll give to the buyer
- Who will pay out entitlements, if any
- What intellectual property will be transferred?
- How to deal with employees
- Customer purchase details and history
- Licenses and permits that need to be transferred, such as food license
- Business contacts like the address, phone numbers, social media, etc.
- How financed or leased equipment will be transferred
- Whether you’ll offer a restraint of trade after selling, that is, you’ll not operate a similar business for quite some time after the sale.
Stages of a Business Sale
Pre Contract
This involves discussing key aspects with the buyer. You should agree on which aspects you will transfer to the buyer. Otherwise, they may offer a lower buying price. If you’ve hired a business broker, they will do this process for you. But you may be required to sign a heads of agreement, which is a document that sets out the sale terms. However, note that this document doesn’t bind you to anything. So, you’ll have to sign a formal agreement once the sale has been finalized.
Due Diligence
In most cases, the buyer would want to see your financial records, business records, and contracts before moving forward. This process is called due diligence. Now, because it exposes some crucial aspects of a business, individuals often worry about their confidentiality. But you can protect yourself by signing a non-disclosure agreement with the buyer or including a confidentiality agreement when drafting the heads of agreement.
You can also include due diligence in the business sales agreement. This way, the buyer will review certain aspects of your business for a specified time but, that is, once they sign the business sale agreement. However, remember that they can still withdraw from the sale if they notice anything that concerns them.
Contract Drafting and Negotiation
Your lawyer will draft the business sales agreement. It has to be present before negotiations as it’ll be used as a reference when negotiating.
Once your lawyer has drafted it, they will pass it to the buyer’s lawyer for a review then parties can start negotiating on certain aspects. Individuals will often go through several rounds of negotiations. But you can quicken things by agreeing on key issues early.
Signing and Exchange
After negotiations and agreements, the seller and purchaser can then sign the contract sale. Usually, the buyer will deposit like 10% of the total buying price when signing the heads of agreement or sale contract. Should they withdraw from the purchase, they should have good valid reasons. Otherwise, they will forfeit that deposit to you.
Settlement
This is where you transfer your business and assets to the purchaser, who’ll then pay off the remaining balance of the purchase price. Note that after signing the contract, you’ll allow some time before finalizing the sale. How long this time will take depends on precedent conditions and other obligations in the contract that must be met before you transfer your business ownership to a buyer.
Conditions precedent are events that occur before a business sale is finalized. These include;
- Employees agreeing with the purchaser
- Landlord knowing and agreeing that the purchaser will be the new owner
- Getting the consent of transferring key contracts to the buyer
You’ll need to allow enough time for the buyer to complete these conditions. While the time it takes varies between different sales, it often takes more time than what was originally anticipated. For example, when leasing, the landlord may want to go through the buyer’s financial position and business experience. Then you’ll need to draft a contract showing the lease transfer. The same process may also apply to other business aspects. As such, it can be time-consuming. But with careful planning, you can shorten this process.
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Post Completion
After selling your business, you may still have some obligations that continue after completion. They include training the buyer, introducing them to customers and suppliers, being employed in that business, etc.
