A Step by Step Guide to Selling Your Business

Cynthia E Brazzil Ralph A. Castelli
March 25, 2008 — 1,270 views  
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Selling a business tends to be a surprisingly difficult and even emotional experience for most owners.  However, the process becomes much easier when the seller knows what to expect.  A good corporate attorney can uncover the mystery of selling a business by walking the owner through every phase of the sale.

Before the business ever reaches the selling block, there are many things the corporate attorney and other advisors can do to enhance the value of the business, shorten the due diligence phase and hopefully simplify the entire process.

1.  As soon as possible, the attorney should ensure that a “transaction team” is put in place.  The team typically includes:  the attorney(s), accountant(s), insurance advisor(s) and banker(s) if necessary.  The attorney should meet with the owner’s accounting firm to examine financial statements.  An involved attorney will already have a good working relationship with the accountant, since accountants play such a critical role.

2.  The corporate attorney can prepare for the sale by evaluating the financial and corporate structure and recommending changes that will “clean up” matters in advance of marketing the business to potential buyers.  This corporate and financial “clean up” can result in an easier due diligence process down the road.

3.  The owner needs to determine whether to retain an investment banker to assist in the sale.  Some bankers have a niche in particular industries, and others handle sales across the board.  The decision needs to be made as to whether an investment banker’s services will enhance the sale price and assist the negotiation process to a degree that justifies the additional cost.  The corporate attorney can help the owner evaluate his or her options and, if necessary, connect the owner with a qualified local or national investment banker.

4.  Prior to “dating” potential buyers, the seller needs various confidentiality agreements.  One type will protect any confidential information that’s disclosed during the negotiation and another will protect the very fact that the company is for sale.  The latter agreement will protect against employees and customers hearing that the company is for sale before the owner is ready to disclose that information.

5.  A letter of intent, which fleshes out the terms of the agreement, needs to be drafted by the attorney.  The seller should be sure this letter is non-binding.  In some circumstances, there can be pieces of the letter that are binding so long as it’s agreed upon and stated in the letter.  Frequently, the buyer’s primary motive for a non-binding letter of intent is to persuade the seller to take the company off the market.  The seller’s attorney should be very cautious about how long a “no shop” clause like this would exist and under what circumstances it would expire.

6.  The final, but usually most noteworthy steps in the sale of a business are: negotiating a definitive agreement and closing the transaction.  Sometimes the execution of the definitive agreement will occur at the same time as the closing and other times there will be a gap between these two events.  If there is a gap of time, it is typically used to resolve any contingencies like financing, remaining due diligence, regulatory compliance and the like.

By the time of the closing, frequently all issues have been resolved and it is simply a matter of signing documents and having a celebratory toast.  After all, closings are for closing, not for negotiating.

For further information regarding these matters, please contact either Mr. Castelli at 248.740.5668 or [email protected] or Ms. Brazzil at 248.740.5667 or [email protected].

Cynthia E Brazzil Ralph A. Castelli