Selling or buying a business.

• Author: Butz, James A.
• Position: Indiana Law - Management tips for the selling process - Brief Article

The key to successfully selling or buying a business is preparation. The sale process typically takes 60 days to 120 clays to complete, and may be extended by unexpected developments and missteps along the way. To increase the likelihood of a successful sale and to decrease the time involved, it is important to prepare.

DETERMINING THE BUSINESS' VALUE

Typically, a seller's primary objective is to maximize the value received for the business. A seller can accomplish this objective by preparing the business prior to examination by potential buyers. At a minimum, a seller should:

* Update and maintain corporate records including record books, licenses and permits

* Maintain accurate and current financial statements and tax returns

* Document important transactions, including key employee agreements and leases

* Address any issues raised by relationships with third parties such as suppliers, customers and governmental entities

The buyer will want to independently determine the value of the business and how the underlying assets will be transferred. To achieve this objective, the buyer will perform "due diligence," including a review of:

* Significant contracts such as loan agreements, leases, and contracts with employees, suppliers and customers

* Financial statements and tax returns

* The condition and ownership of assets including real estate

* The ownership of intellectual property

FINANCING THE TRANSACTION

A seller will want to select a buyer who not only has offered an attractive price, but more importantly, has the financial ability to complete the transaction. Examine the buyer's reputation in the industry, previous transactions and financial relationships. Conversely, the buyer's clear objectives should be to quickly determine how the purchase price will be paid and secure the necessary financing.

NEGOTIATING THE DOCUMENTS

The main documents involved in the sale or purchase of a business are the confidentiality agreement, letter of intent, and definitive agreement.

The confidentiality agreement primarily governs the exchange of information between seller and buyer. The seller will want the confidentiality agreement to protect...