In addition to the emotional preparation associated with selling a business, you’ll need to assemble the necessary paperwork to help shepherd the deal through. Consider the checklist below a guide to be augmented by the help of an experienced attorney and accountant or business advisor. Also, don’t be intimidated by the volume of paper; it’s in your best interest to prepare the required paperwork so that any questions or problems that arise later can be traced back to a tangible, legal document.
Remember to consider everything associated with your business — for example, the assignment of a lease, transfer of good will, merchandise, lighting fixtures, equipment, furniture, and the transfer of the business name. Although you will want the buyer to take on some of your debts, liabilities, or obligations, the buyer will want as much protection against undisclosed liabilities as possible. So don’t be surprised, as you navigate the sale, that your buyer will want a provision citing his or her obligations.
As you prepare for the business sale closing, don’t underestimate the importance of any document that reflects your company’s status. Here’s a checklist of some of the major documentation you’ll need:
- Agreement in principle. This refers to the understanding you have with the prospective buyer and will include the price of your business and the major terms of sale. Sometimes this is called a “letter of intent.”
- Financial statements. Don’t be surprised if your buyer — and the bank financing the purchase — want to see audited financial statements, including a balance sheet. Remember, the buyer will almost always be responsible to others like shareholders who’ve entrusted the buyer with their investment. Presenting audited numbers is to your advantage, too: credible figures can strengthen your negations. If you don’t want to expend the money on an audit, consider having an outside accountant review your statements.
- Assets that are subject to agreement. Here, you’ll need to disclose the type of business building and other property; good will, which means the use of the company name and customer lists; the stock in trade; equipment, furniture, and fixtures; patents, copyrights, trademarks, and trade names; cash on hand and on deposit; insurance policies; notes and accounts receivable, securities for debts, and outstanding contracts; other assets; and valuation of assets sold.
- Tax rulings. As the seller, you are responsible for getting the necessary approvals and mailing necessary filings for tax rulings.
- Inspection of books, records, and premises. For this you’ll need to furnish customer and supplier lists.
- Representations by seller. These include the title to property and assets; the authority to enter into an agreement; accuracy and completeness of books and records; all outstanding liens, contracts, judgments, and other obligations; proof of the absence of labor disputes; validity of patents, copyrights, trademarks, and trade names; compliance with all laws affecting the business.
- Principal warranties and covenants. Not surprisingly, your buyer will likely want to get as many warranties and covenants as possible. On the other hand, you could become liable for those warranties and covenants, so be sure you know where your responsibilities begin and end.
- Assumption by buyer of the lease. This refers to obtaining lessor’s consent to assignment of your lease.
- Obtaining necessary approvals and making necessary filings. This means you’ll need to show tax rulings; antitrust rulings; and similar approvals.
- Collective bargaining agreement. If the buyer is assuming your collective bargaining agreement, you’ll need to have documentation reflecting this.
- Motor vehicle titles. If you transfer titles to the buyer, you’ll need documentation reflecting this as well.