How to Buy or Sell a Small Business

By in
17
How to Buy or Sell a Small Business

When considering how to sell a small business, it isn’t as simple as putting your company on the market and getting a buyer. You must get everything lined up. You’ve got to find the right buyer, sell them on the idea that they can grow the business, have all your documents in order, know your numbers inside out, and make sure your product is ready to be acquired.

The same mindset exists for entrepreneurs looking to buy a business. Give due diligence to the items mentioned below, and thoroughly review every detail. Whether you are a business owner looking to sell a business or a would-be buyer, it is imperative to ask the right legal questions from the start. Taking the time to do this can spare you from a great deal of stress, headaches and unwanted financial implications down the road.

Why You Need A Lawyer

Regardless of the size of the transaction, buyers or sellers need to enlist the services of an attorney to represent their interests. An attorney will ensure the purchase agreement and related documents are consistent with your objectives and level the playing field for both parties.

Even if you’re working with a business broker, you’ll still need legal advice. There is room for both a broker and lawyer in the process, but you will need a lawyer who is familiar with and specializes in business law. Buying or selling a small business with 30 employees is not the same as the mergers or acquisitions you read about in the Wall Street Journal, and legal expenses can add up quickly if you hire a large firm. Work with an attorney that understands your business and your business objectives.

What You Need to Buy or Sell a Business

The process of buying or selling a small business usually begins with the following three actions. An experienced lawyer can guide you through the process:

Letter of Intent

Once a seller and buyer show mutual interest, they should execute a Letter of Intent that achieves two important objectives:

  1. Protects the confidentiality of the seller’s information provided during the due diligence period.
  2. Establishes a timeline as to when future events will occur, such as the drafting of the purchase agreement and the proposed closing date.

Some Letters of Intent go further, establishing the sale price without further negotiation, and a “no shop” period, where the seller may not offer the business to other buyers, except in a backup position to the one in the LOI.

Purchase Agreement

Most transactions are an asset purchase, meaning the buyer will purchase most of the seller’s assets and transfer them to the buyer’s new or existing entity. Occasionally, the seller’s entity has extensive licenses that are difficult to transfer, and the buyer will take over the seller’s entity. The latter is rare, due to the buyer’s automatic assumption of nearly all seller liabilities.

The Closing

Except for very small transactions, the closing should be handled by an escrow company that focuses and is experienced with small business sales.

We’ll Help You Buy or Sell a Business

Manning & Clair Attorneys At Law have extensive experience working with small businesses. We provide the experience and expertise you need to understand the short and long-term consequences of business decisions. From forming a business and deciding what business structure to choose, to the daily operations of the company, we are there to guide you as your business grows. Contact us to learn more about how to buy or sell a small business.

Manning & Clair Note: The information is intended for a general overview and discussion of the subject. It is not intended to be, and should not be used as, a substitute for taking legal advice in any specific situation. Please consult an attorney for advice about your individual situation.