The Process of Selling Your Business, Page 4

Offer and Acceptance

An offer may come in the form of an Earnest Money Receipt or A Letter of Intent. It will typically include the price and terms being offered, the sale structure (asset sale vs. stock sale), a closing date, contingencies and conditions of a sale.

Terms and conditions presented in an offer may outline the method of payment, scope and length of a non-compete agreement, training terms, incentive payments, identification and condition of assets being acquired, identification of liabilities to be assumed, any seller warranties, and other transaction details. Contingencies will detail all action items needing completion prior to a sale. Verification of financial and operations information (due diligence), satisfactory equipment inspections, satisfactory lease transfer arrangements, compliance with licensure and regulatory bodies requirements, financing approval, attorney review and approval of all sale documents, are all common sale conditions. Contingencies will often be tied to completion dates.

An offer may be accepted, rejected, or modified and presented back to the purchaser as a counter-offer. Until agreement is reached by both parties, either party may withdraw their proposal.

In considering an offer, be sure to evaluate the purchaser's qualifications, financial position, and method of securing any payments to be made. A good price from a risky purchaser may not be the best solution.

Completing Your Sale:

Due Diligence

The time between offer and acceptance and closing can be the trickiest. Contingencies must be removed, third parties must get involved, and the final details need to get nailed down. Due diligence, the process in which a Purchaser will perform the tasks necessary to verify the financial and operations information represented by the Seller, and a Seller will verify the financial and business strength of a purchaser, is typically the first action item that follows offer and acceptance. A purchaser may have his accountant assist or perform due diligence.

In order to sustain a smooth transaction, and to minimize the potential damage in case of a sale fail, we offer a few tips regarding due diligence:

• Do not allow in depth due diligence to be performed until offer and acceptance has been reached.
• Have a clear time frame encompassing the due diligence process. A time frame in which necessary information will be provided, and a time frame in which due diligence will be completed, keeps a transaction moving in a forward motion.
• Do not move on to other contingencies involving third parties (lease transfer arrangements, supplier transfer agreements, etc.), until the due diligence contingency has been removed.