As a business owner, you put your whole heart and soul into your business. When the day comes and it’s time for selling your business, you want to make sure all the hard work you’ve put into growing it pays off.
How do you set yourself and your business up for success?
If you are preparing to sell your company, there are several considerations you’ll want to discuss with your attorney, CPA, and financial advisor. This includes how best to deal with any debt or liabilities and which documents will be requested. Here are a few specifics to plan for.
1. Have a plan in place to pay all accounts payable and other company debts.
If you know you’ll be selling your business in the next year or two, make sure you’re clear on exactly what the company’s debts and liabilities are. This is particularly important if you’ve been a hands-off business owner who employs a general manager or managing director responsible for the day-to-day operations.
2. Avoid a name change, rebranding, hiring a new team, or incurring new debt or liabilities
In preparation for a sale and business appraisal, be aware that this is not the time to make any drastic changes. It’s wise to continue to operate the company in substantially the same manner as you have in the past. Don’t defer maintenance on equipment or buildings. You should make all replacements and repairs just as you would in the ordinary course of business.
3. Have a solid, marketable title to your business’s assets
Your title to your business assets should be free and clear of any and all claims, liens, security interests, and encumbrances. Taxes should be paid, including personal property taxes, sales tax, payroll taxes, and income taxes. Documentation is key to a successful sale, and to that end, you’ll need the following:
- The business’s most current balance sheet.
- Articles of incorporation or certificate of organization, and bylaws or operating agreement, depending on what type of entity you have.
- Clarity on the exact ownership structure of your company (i.e. who owns what and how much of it).
Insurance policies maintained by the company for a full five years prior to the planned sale date. - A list of tangible assets owned by the company (buildings, machinery, equipment, etc.). These must be considered necessary for the company to conduct business. Each tangible asset is free from defects and maintained in accordance with normal industry practice. The prospective buyer will want to make sure everything is in good operating condition and repair and is suitable for the purposes for which the asset is intended to be used.
- Compile a list of all intangible assets owned by the company, including intellectual property, phone numbers, websites, etc.
As mentioned, you’ll need to be able to show that you own your company and its assets free and clear of all liens, pledges, security interests, claims and other encumbrances. Essentially, you need to be able to transfer ownership of the company to the buyer so that upon the transfer, the buyer will acquire sole and complete control of the company and its assets.
The Successful Business Sale
A successful sale happens when the seller knows about all contracts and agreements, whether oral or written, impacting the company. A seller should feel confident stating that all accounts receivable reflected on your balance sheet are valid, genuine, and originated from bona fide sales and deliveries of goods or performance of services rendered. None of your accounts receivable should be in dispute.
Finally, the inventory on your balance sheet should only consist of items that are sellable and in a satisfactory condition for the purpose for which they were procured or manufactured.
You will also need to be able to state that the company has complied with all applicable laws, including all rules, regulations, codes, and plans.
The job of a business attorney specializing in transactions is to make your life as a business owner easier, especially when it comes time to sell. You’ve invested blood, sweat, and likely some tears into your business, and you deserve experienced representation that can help you make the sale go as smoothly as possible.
If other questions come up as you prepare to sell your business, our experienced business attorneys are here to support you. Contact us.
This blog is not legal advice and does not create an attorney-client relationship with our firm. The content is intended to promote a general understanding of legal concepts and should not be relied upon as a substitute for obtaining legal advice from a qualified attorney regarding the reader’s specific circumstances. Readers should consult legal counsel for advice concerning their individual situations. All content is provided without any representations or warranties regarding completeness, accuracy, or timeliness.