What You Need to Know Before Selling Your Business

Oct 1, 2019 | Business

By Cora Whitney, Attorney

If you are preparing to sell your company, there are several considerations you’ll want to discuss with your attorney, CPA, and financial advisor, including how best to deal with any debt or liabilities and which documents will be requested.

If you know you’ll be selling your business in the next year or two, make sure there’s a plan in place to pay all accounts payable and other company debts. That means you need to be crystal clear on exactly what debts and liabilities that the company has (of any kind). This is particularly important if you’ve been a hands-off business owner who employs a general manager or managing director responsible for the day-to-day.

As you determine your true financial numbers in preparation for a sale, be aware that this is not the time to make any drastic changes, such as a name change or rebranding, investing in new employees, or incurring new debt or liabilities. It’s wise to continue to operate the company in substantially the same manner as you have in the past. Don’t defer maintenance on capital assets, meaning you should make all replacements and repairs just as you would in the ordinary course of business.

Business owners should also have a solid, marketable title to its corporate assets, free and clear of any and all claims, liens, security interests and encumbrances. Taxes should be paid and fully up to date, including personal property taxes, sales tax, payroll taxes, and income taxes. Documentation is key to a successful sale, and to that end, you’ll need the following:

The business’s most current balance sheet

Articles of incorporation or certificate of organization, bylaws or operating agreement, all depending on what type of entity you have.

Clarity on the exact ownership structure of your company (i.e. who owns what and how much of it).

Insurance policies maintained by the company for a full five years prior to the planned sale date

A list of tangible assets owned by the company (buildings, machinery, equipment, etc.). These must be considered necessary for the company to conduct business. Each tangible asset is free from defects and maintained in accordance with normal industry practice. The prospective buyer will want to make sure everything is in good operating condition and repair and is suitable for the purposes for which the asset is intended to be used.

Compile a list of all intangible assets owned by the company, including intellectual property, phone numbers, websites, etc.

As mentioned, you’ll need to be able to show that you own your company free and clear of all liens, pledges, security interests, claims and other encumbrances. Essentially, you need to be able to transfer ownership of the company to the buyer so that upon the transfer, the buyer will acquire sole and complete control of the company.

A successful sale happens when the seller knows about all contracts and agreements, whether oral or written, impacting the company. A seller should feel confident stating that all accounts receivable reflected on your balance sheet are valid, genuine, and originated from bona fide sales and deliveries of goods or performance of services rendered. None of your accounts receivable should be subject to counterclaims—a knowledgeable business attorney can make sure this is the case.

Lastly, the inventory on your balance sheet should only consist of items that are sellable and in adequate condition for the purpose for which they were procured or manufactured. You will also need to be able to state that the company has complied with all applicable laws, including all rules, regulations, codes, and plans.

The job of a business attorney specializing in transactions is to make your life as a business owner easier, especially when it comes time to sell. You’ve invested blood, sweat, and likely some tears over your business, and you deserve experienced representation that can help you make the sale go as smoothly as possible and position you and your family for the next chapter of your life.

This post previously appeared as an article in the Idaho Business Review.

This blog post is designed to provide general information on pertinent legal topics. The statements made are provided for educational purposes only. This blog does not provide legal advice. This blog does not create an attorney-client relationship between you and Smith + Malek, PLLC. If you want to create an attorney-client relationship and have specific questions regarding the application of the law to your own circumstances, you should contact our office.