RESOURCES

Timeline

It is imperative that you partner with experienced professionals to help you through the selling process. The team should include the following:

Identify Candidate

Once a business has been identified as a candidate, approaching that business may differ slightly. If the business is publicly up for sale (through newspaper, trade journals, etc.) or if an intermediary is involved, the first meeting between the buyer and sell can be easily facilitated. However, those businesses that are not officially for sale, a direct personal contact between the interested parties may be the most successful approach.

It is also important to remember that the accountant and corporate attorney should be brought into the negotiation process early. The sooner these individuals are brought into the team, the sooner the buyer and sell will know whether to proceed with the transaction. During the early stages of the negotiation process, the parties have the opportunity to establish a price and the buyer has an opportunity to learn more about the seller, his business and his motivations of selling his business.

Nondisclosure Statement

Once the seller has examined the buyer's credentials and is satisfied with the buyer's ability to purchase the business, the seller is open to disclose additional information about the company's financial condition, customers, suppliers, patents and other details about the company. However, before additional information is provided to the buyer, the seller typically requires the buyer to sign a nondisclosure statement that legally binds the buyer from disclosing any information about the seller's business.

Letter of Intent

Once a general agreement is reached in a negotiated sale, both parties sign a letter of intent (LOI). Drafted by the buyer's corporate attorney, the LOI simply evidences a serious mutual intent to go forward with the negotiation process. The LOI commits to writing the major terms of the sale, such as the agreed upon price, form of consideration (stock, cash, debt etc.), continued employment agreements, noncompete convenants and nondisclosure requirements. It also lists matters that must be accomplished before the purchase agreement is signed. The following two provisions should be expressly identified as legally binding in the LOI; (1) Nondisclosure - The buyer obligates not to disclose to anyone, unless authorized by the seller, that negotiations are underway or to disclose any information learned about the seller's business. (2) Shopping - the seller obligates not to solicit other potential buyers within a fixed time frame, usually a 90-day period.

Due Diligence Investigation Process

The investigation process begins with the signing of the letter of intent. Negotiations continue during this phase and the end result of the investigation process is the purchase agreement. Throughout the Due Diligence Investigation Process, issues will arise that were not discussed during the initial negotiations. (i.e. a pending lawsuit) The investigation focuses on the accountant's duties in conducting the financial side of due diligence. The attorney's investigation will include reviewing company records, real estate and personal property ownership matters, licenses, patents, trademarks, employment agreements, supplier and customer agreements, litigation, compliance with governmental and environmental regulations.

This process allows the seller and buyer to decide whether they want to proceed with the transaction, and determine if the price and terms as specified in the LOI are acceptable.

The Purchase Agreement

The buyer's corporate attorney usually drafts the purchase agreement. Once the buyer and seller sign the purchase agreement, neither party can changes the terms of the transaction.

Purchase agreements can be relatively simple. Typical purchase agreement provisions include the following:

• Purpose of the transaction.
• Definitions for terms in the agreement.
• Description of assets, selling price, form of payment, and timing of payment.
• Allocation of purchase price and specific assets.
• Warranties, representations and agreements of the buyer and seller.
• Conduct of the business between the date of the purchase agreement and closing date.
• Conditions necessary in order to close the deal.
• Time and place of closing
• Indemnification provisions specifying procedures for resolving post-closing disputes and breaches of seller's warranties and representations.
• Covenants restricting competition.
• Miscellaneous matters regarding escrows, payment of broker commissions and various legal provisions.