Is it time to retire? Or, are you looking for something new and exciting to try? If you’re ready to sell your business, what documents do you need when you sell a business? There are important steps that need to be taken. One of the first things you should do is start working with a professional business broker. A lot of information about your business will need to be compiled, and the business will need to be marketed properly to find the right buyer, or for that matter, any buyer. Your broker will be with you through every step of this, ensuring you have the best chance of selling the business and getting a good price and terms for it. Some of the documents they can help you gather or create include the following:
The first thing that’s done is to create a confidentiality agreement (CA), otherwise known as a non-disclosure agreement (NDA). The Seller will want to have a confidentiality agreement signed by the Buyer. This is designed to help keep sensitive information about the business from being released, so it’s something that benefits you, as a Seller. If the Buyer goes through due diligence, learns sensitive details about the business, then decides against purchasing it, the Seller won’t want the Buyer taking advantage of the information they’ve learned. The confidentiality agreement should be signed before any information about the business is released, including the name. This way, the Seller is protected regarding sensitive information being released about the business, or just the fact that the business is being sold, at all.
Letter of Intent
Once a buyer has done some initial due diligence and wants to make an offer, they create a Letter of Intent (LOI). The LOI details the conditions and terms of the sale, which include the purchase price, if a deposit is needed, terms for due diligence, and more. It is possible for the Buyer to create an LOI and submit it to the Seller, but this won’t always be the case. The business broker, attorneys, Seller, and Buyer can work together to create an LOI with terms they both agree to and are willing to sign. The LOI is a non-binding agreement, which means there isn’t yet a guarantee that the sale will happen. However, once there is an LOI signed by the buyer and the seller, the Seller will usually give the Buyer some exclusivity, and the Buyer may place a deposit in good faith. Smaller deals usually have deposits while larger deals do not, though they may have “break-up” fees. If problems are found in due diligence or the negotiations don’t go through, the Buyer receives this deposit back, depending on timing and successful completion of due diligence. The LOI can also be used by the buyer to help secure a loan with a bank to purchase the business.
Documents for Due Diligence
The Buyer will need to do due diligence to make sure the information presented about the business is true and complete. The Seller will need to get various materials ready for diligence, but it’s something that is incumbent on the Buyer to complete. Diligence is where the Buyer examines information about the business to understand how that particular the business is run and to make sure it’s a viable going-concern. During due diligence, the buyer will look through financial records, sales reports, profit and loss statements for the previous few years, leases, contracts, loans, records of orders, and more. It is important for the Seller to have these documents ready and available for the Buyer to view and to make sure they’re properly organized so the Buyer will get the information they need.
If the Buyer does decide to purchase the business, the next step is the purchase agreement and the other documents that make up the “definitive agreements”. The purchase agreement is a binding agreement, and once it is signed, the buyer is obligated to proceed with the purchase, unless there are material changes to the business before closing or a major business disruption/act of God. The purchase agreement will include any details of the sale, such as the purchase price and any specific terms. Both the Buyer and Seller should agree with all information in the purchase agreement. The attorneys for both sides will include anything needed to help protect their clients’ interests. This document can be very large, and sometimes this can be where things can become contentious. While most business brokers are not attorneys and will not write legal language, brokers can help mediate “business decisions”. This happens when attorneys reach a stalemate in negotiations and need both sides to make a “business” decision.
Seller Financing (Not All Sales)
The financing can differ based on the buyer’s financial situation, the risk involved in transferring the business to a new Buyer, or what the bank may be willing to lend on an acquisition. For sellers, the best option is to receive cash from the Buyer. However, many buyers cannot pay all cash, nor are they interested in taking all of the risk. Instead, they’ll need to finance the purchase. This can be done through a bank loan, but it can also be done via seller financing, or both. If the Seller does agree to finance the business purchase, documents need to be created outlining the terms of the agreement. This is called a promissory note, or a Seller’s Note. Seller Notes are never a pleasant option for Sellers, who then need to help finance their own business sale, but seller financing documents can help protect the seller if the buyer cannot or does not pay. If the business is purchased with cash or a bank loan, seller financing documents are not needed. However, because all small businesses are risky, some amount of seller financing could be the difference between receiving a premium for the business, or selling the business, at all.
When everything else is done, the last step involves the closing documents. These usually include the bank paperwork needed to close the sale and transfers the ownership of all parts of the business to the buyer. There are a number of legal contracts included in this paperwork, so it is a good idea to have a professional help with this step. However, this is the last step so, as long as there are no outstanding issues from the previous steps. Then, these papers can be signed, the money is wired to the Seller, and the deal is officially considered closed. Note that the closing documents can differ based on the details of the sale, such as the financing and any specific terms that may need to be included in the final paperwork.
Getting ready to sell your business takes a lot of work, and you’ll need a lot of documents to get ready to sell. Whether you’re just thinking about it now or you’re ready to talk to someone and get started, a business broker, along with a dedicated M&A attorney can help. They’ll be with you through each step of the sale and will work with you to compile all of the info needed to sell your business. Talk to a business broker today about what documents you need to sell your Austin TX business and learn more about how they’ll help you complete your next sale. What documents do you need when you sell a business? These can be the difference between selling your business or not selling at all!