Negotiating the Sale of Your Business

• Selling Price
  This sounds like it should be a simple number to arrive at, but the selling price may actually be separated into several sections:
  
  • The price of equipment, supplies, and inventory
    
  • A purchase price for buildings and land owned by the business
    
  • A purchase of shares of stock owned by the owner and other shareholders
    
  • Compensation for a non-compete agreement.
  
  
• Decide on Contingencies
  Contingencies are those conditions which must occur before the sale is complete. Contingencies might include:
  
  • Favorable review of your business financial records
    
  • Receipt of escrow or earnest money deposit by buyer
    
  • Qualification of buyer by lender
    
  • Acceptable transfer of building or office lease
    
  • Acceptable bank financing for buyer
  
  
• Consider Covenants (Promises)
  Covenants are promises made by the parties to each other. In a typical busines sale, these covenants might include:
  
  • A covenant not to compete with the new owner
    
  • The current owner's "business as usual" promise, in which the owner promises to keep running the business "as usual," not making an new unusual agreements, maintaining the same business hours and inventory levels, and continuing to provide the same level of customer service.
  
  

• Representations and Warranties
  Warranties are promises made by the parties to each other. In a business sale, these warranties might include:
  
  • The financial records of the business are true and complete
    
  • Inventory of goods and products is correct
    
  • The seller has full authority to sell assets and is not in default on any contracts
    
  • All leases are in good order, all taxes have been paid, all liabilities are current, and there are no liens against any assets that have not been disclosed.
    
  • All permits, licenses, and certifications are current and valid
  
  
• Transition Issues
  Other discussions between buyer and seller may include transition issues, such as:
  
  • In-progress inventory or customer work.
    
  • Dealing with 'hidden' liabilities that might show up after the sale has closed.
    
  • Contact with customers - how and when that will be handled, and by whom.
    
  • Current employees - will they stay or go?
    
  • Contracts with credit card vendors, other vendors, and how/when to notify these people.