Preparing to sell your business can be a daunting task. You have spent countless amounts of energy and hours building your company and you may not have expected to find yourself in this scenario. Regardless of the circumstances that brought you to this point, saying goodbye to a business you have poured yourself into is never easy. But there are a number of things you can do to prepare for the process and evaluate whether or not it is the right move for you. If the timing is right, this checklist will help you ensure that you have left no stone unturned and are preparing to hand your company over in the best way possible to its new owner.
But before we dive into all the items that must be addressed during the sales process, it is important that you consider all that you might have to give up when you sell your company. Depending on the type of arrangement you make with your buyer, you will likely have to sign over ownership of your entire inventory, intellectual property rights, patents, and copyrights. Some things you might be able to negotiate, such as keeping a seat on the board of directors, but other you might not. So think carefully about what this means to you and if you are prepared to move forward or willing to accept a variety of outcomes.
Getting to know and become familiar with your buyer may help address some of the hesitations you will naturally find yourself experiencing. But, ultimately, what happens to your company will be in the hands of your new buyer. And you need to be comfortable with that, or at least accept it. When you are ready to move forward, there are a lot of logistics to handle before, during, and after the sale.
The #1 Checklist to Selling A Business
Unfortunately, selling your business entails a lot more than just handing over your office keys to the buyer. You must prepare and evaluate everything connected to your brand, providing many of these details to the buyer themselves so they can perform their own process to ensure the viability of their purchase. This is a standard and necessary practice known as due diligence in which the buyer combs through every aspect of a company they are considering purchasing. Some of the common due diligence items you should be prepared to share include:
Corporate Structure & General Matters
Reviewing the structure, capitalization, organizational documents and general corporate records of the company allows a buyer to ensure your company is in order. Here are some of the documents typically reviewed:
- Incorporation documents
- Corporate bylaws
- Organizational charts
- Securities holders
- Stock option agreements and plans
- Stockholder and voting agreements
- Warranties
- Recapitalization or restructuring documents
- Minutes from all board, shareholder, and/or executive meetings
- Agreements related to the sale or purchase of any other businesses
Taxes
This process explores historical income tax liabilities and provides an analysis of all tax carryforwards along with their potential benefits. The goal is to verify that your business’s taxes are current in all jurisdictions and that there will be no unexpected tax problems after the sale. Documents reviewed generally include:
- All federal, state, local, and foreign income, sales, and other tax returns filed within the last five years
- Correspondence or notice from any foreign, federal, state, or local taxing authority
- Government audit records
- Tax sharing and transfer pricing agreements
- Net operating losses or credit carryforwards
- Settlement documents with the IRS or other tax authorities
- IRS Form 5500 for 401(k) plans
Intellectual Property
The goal of this review is to establish the extent and quality of your company’s technology or intellectual property, including its protection. This list of documentation usually includes:
- Patents
- Copyrights
- Trademarks
- Domain names
- Trade secrets
- Licenses and licensing agreements
- IP litigation and claims
- Liens or encumbrances on the company’s intellectual property
Material Assets
Probably one of the most obvious things to review is your company’s material assets and doing so is key to a successful transaction. You must consider the total value of all assets and any debts or liabilities against them. Typically, the following assets are appraised:
- Inventory stock
- Real estate
- Equipment
- Technology
- Research and development
Contracts
Your team should also be prepared to hand over all material contracts and commitments tied to your company. This process is one of the most critical and time-consuming parts of due diligence so preparing the documentation in advance can help keep the sale running smoothly. Generally, a buyer will want to review all of the contracts currently in force at your company, including:
- Customer and supplier contracts
- Schedule of accounts receivable and payable
- Guarantees, loans and credit agreements
- Agreements of partnership or joint venture
- Equipment Leases
- Settlement agreements
- Non-compete, most favored nation, and exclusivity agreements
- License agreements
- Distribution, dealer, sales agency or advertising agreements
- Franchising agreements
- Employment contracts
Some other matters that a buyer will want to look into prior to purchasing your business will include employee and management structure, benefit offerings, any outstanding litigation, applicable compliance or regulatory matters, and the overall strategic fit of your company within their own.
As you approach the close of the deal, ensuring that both you and the buyer are on the same page on every facet of the purchase can help minimize conflict during the actual transition of ownership. In some cases, you may have to schedule a final transaction meeting to sign the closing paperwork in which case it is important to clarify who must be present and where this meeting will take place.
But increasingly, the paperwork can be signed remotely by each party and couriered back and forth. Regardless, always make sure that you have had ample time to review the documents and consult with a legal and financial representative to ensure a successful transition of ownership while decreasing the risk of liability.
What to Expect After the Sale
After the final closing of the transaction, you will still have a few items to take care of before moving on. Typically, both parties involved are responsible for making an announcement of the transaction to their respective teams. In some cases, there may be specific clauses which make the agreement contingent on your delivery of certain assurances, goods, or other obligations meaning the transaction is not finalized until all items have been completed and received in good faith.
More often than not, the sale of your current business will dictate some restrictions on what you choose to do next. Many transactions include a non-compete clause or a covenant not to complete section wherein signing you agree not to create a new entity with competing interests.
How The Hatteras Group Can Help
The Hatteras Group has a long-standing tradition of partnering with businesses to set them up for success. Even if you are not prepared to sell your business at this time, our team can audit the health of your company with an advanced 10-point evaluation to determine if there are any issues that could potentially derail a sale in the future. So if you find yourself looking to sell your business, Hatteras Group can help and partner with you for the best outcome. We have been in the business of mergers and acquisitions for decades, and in our experience, we have overseen millions of dollars exchanged. An experienced team comprised of former business owners who have sold their companies, we now help others to do the same effectively and efficiently.
