Trustmark Mergers & Acquisitions

Getting Your Legal Affairs in Order Before a Business Sale

09.05.24 06:19 PM By MARK HERRMANN

Getting Your Legal Affairs in Order Before a Business Sale


This article is contributed by Ritchie Taylor with the law practice of Manning Fulton and Skinner, Raleigh NC. 

www.manningfulton.com


In the life-cycle of your business, there are few, if any, more important events than its sale and your exit. This is the culmination of years of hard-work and, as such, you should take all necessary steps to put yourself in an optimal negotiating position to maximize the value of your business. This is likely an exciting time as you consider your next venture or plan for retirement, but it is important not to be hasty and not to allow the excitement of the process to distract you from the careful planning and preparation necessary to get the most out of your business. This guide is designed to explain and help you navigate the numerous legal considerations that will underpin the sales process.

  1. Assess the market and your business's value: Before putting your business on the market, you need to have a realistic understanding of its value. You should research recent sales of similarly positioned businesses in similar industries and consider consulting with a business valuation firm to determine the appropriate valuation method for, and ultimately the value of, your business. Understanding the value of your business from a buyer or third-party‚Äôs perspective is critical to a successful sale.
  2. Organize your documents: Start by ensuring all your paperwork, from financial records to legal agreements, is in order. This means having all essential documents ready, including (but certainly not limited to) organizational documents, financial statements, tax returns, customer lists, material contracts, and insurance policies. Having these documents ready serves to reduce time and expenses relating to due diligence and may allow you to solve or mitigate certain issues to the extent you may identify issues earlier.
  3. Clean Up Your Finances: What you have always done and what makes sense to you as the business-owner will not always make sense to potential buyers. That being the case, it is often necessary to update your financial records to conform them to generally accepted accounting principles or, at a minimum, to make them reasonably presentable to prospective buyers. Well-maintained financial records not only speak to the accuracy and reliability of your valuation but serve to reduce liability for claims relating to false or misleading data.
  4. Identify and address potential issues: Identify any potential impediments to the sale process, such as legal or regulatory compliance issues, pending lawsuits, outstanding liens or encumbrances, required consents, and customer or employee claims. This will entail a detailed review by your legal team of such things as supplier and customer contracts, permits, leases, and governance documents to discover and correct any issues that may raise red flags in the minds of potential buyers. Discovering these issues early allows you to address them early, putting you in a position to either correct them before they can be used as negotiating leverage against you. 
  5. Choosing the right business broker: Finding a buyer, let alone the right buyer, can be extremely difficult and many business-owners find value in hiring an experienced business broker to navigate the marketing and sales side of the process. They can assist in attracting buyers, negotiating deals, and managing paperwork, saving you time and effortand often enhancing the transaction value in excess of the fee paid.
  6. Sign a letter of intent to guide later negotiations: Creating a detailed letter of intent serves as a roadmap for the transaction, allowing you to lock-in certain key provisions to avoid later disputes. This document will act as important negotiating leverage by giving you something to refer the buyer to if they attempt to re-negotiate key provisions later in the transaction process. Involving your deal lawyer in the letter of intent process is critical as many core points are negotiated in the letter of intent, which, if not addressed, result in missed opportunities to structure the transaction to your advantage.

Taking these steps early may help to reduce expenses and streamline the selling process. If you are considering the sale of your business and need legal assistance in navigating this process, please contact Ritchie Taylor at Manning Fulton or visit our website to review our Mergers and Acquisitions practice services.

MARK HERRMANN