You’ve got homework to do before you can successfully sell your small business. Even if you already have an interested buyer, attention to the details at this stage of the game will help you in the long run and protect you from unexpected snafus. Your small business lawyer should be able to help you with these steps.
1. If you’re leasing space for your business, find out from the landlord of the premises (and check your lease) what he/she requires in order to consent to an assignment of your lease to the buyer. Usually the Landlord wants to see that the proposed buyer is credit worthy and has a good chance to continue your business successfully and consequently be able to pay his rent;
2. Make sure you have a copy of your lease and all its extensions and modifications. Check the requirements in the lease regarding the assignment of the lease to a buyer of the business. If you’re lucky the lease “only” states “any assignment of this lease requires the consent of the Landlord, which consent may not be unreasonably withheld.” This tells you that your landlord has to give your proposed buyer serious consideration.
3. If you’re not of the super organized type, do a lien search on your business (the business owners) and its assets in order to find out if there are any forgotten liens outstanding. You may have forgotten about some age old tax lien, equipment lien and so forth. If you find liens, pay them off or disclose them to the buyer and arrange for pay off letters with the creditors. Pay off letters provide for the payoff of debts at closing and guarantee the buyer that the creditor will release you, the seller, upon payment of the debt. If the payoff occurs at the closing, the funds could come from the proceeds of the selling price. Neglecting to disclose outstanding debts could make you liable for a breach of the representations and warranties in your sales agreement.
4. Make a list of all relationships with vendors, service providers, large customers. To the extent you have ongoing contracts with any vendors, service providers or customers, assemble all those contracts. Read (or have your small business lawyer review) all these contracts to determine what happens to them in the case of a sale of the business.
5. Make a list of all assets of the business and determine their initial cost and depreciation status (or have your accountant do it). Have you accountant or small business lawyer advise you on the tax consequences of a sale of the business and how to best allocate any purchase price to various asset groups. Get your financial statements in order and ready to be presented to the prospective buyer.
6. Clean up your business, literally. A little staging and polishing goes a long way to increase your selling prospects;
7. If you have staff, determine all your operation procedures and manuals and other ways of doing business smoothly and day to day. The more you can show that your business is not that dependent on you, the prior owner, the better it is for a prospective buyer of your business. A “turn-key” business is what you’re going for.
8. Get all your permits and licenses together and in order, determine if the licenses are assignable or if the new buyer has to get new licenses and permits;
9. Get emotionally ready to let your business go! Not sure what that would entail for you, but I think an overly attached business owner doesn’t make a good business seller.