Agreement for Sale of Business

Buying a business or selling one requires familiarity with certain legal documents, not least important of which is the business for sale contract or agreement.  Variations of this document certainly exist, but they all contain the same basic elements.  The purpose, in a nutshell, is to lay out in detail precisely what is being sold.  It will spell out the price and exact terms that have been agreed to.

The standard contract will list the names of the buying and selling parties, define the purpose of the document, and define terms to avoid any potential confusion by either party.  Some of the topics that may be included are: amount of deposit; employee retention and related details; treatment of existing liabilities; warranties of existing equipment; assets to be included in sale.

The more proficient you are in the language of the documents used in the exchange, the happier you are bound to be with the outcome.  There will be fewer surprises, mysteries, and dissatisfactions.  So, for this document here is a brief key to some of the most common and important terms:

Due Diligence. The process where the buyer has the opportunity to thoroughly investigate all documents offered up by the seller.

Cash flow. A statement offering a snapshot of the amount of money the company has at a given moment in time.

Letter of intent. A good faith letter usually preceding the contract that may include some legally binding provisions that will also appear in the contract.

Seller’s discretionary cash flow.  Takes a look at how the seller chose to pay for items through the company, rather than personally, for greater tax deductions.  Since the buyer may choose differently, determining this amount will help to more accurately evaluate the amount the business has actually earned.

Choosing a business broker

Business brokers are trained professionals who help business owners save time and money when trying to sell their businesses.  They work much like realtors in that they charge a commission which gives them great incentive to get you the best price possible for your business; the more you get, the more they make.  They have a number of avenues by which they will advertise your business, both electronically on websites specifically for selling businesses, as well as the typical forms of print media including posting fliers and sometimes the use of a storefront window capturing the attention of passersby.

 The benefits of using broker services are many.  They save you time by filtering inquiries so that you need only bother with the ones that have serious interest in buying your business.  Brokers plug your offering into their established networks of clients and contacts.  They can appraise your business’ worth and predict what it will sell for.  Brokers keep on top of current trends and how the economy is affecting the market as it relates to selling your business.

Listen to your intuition when deciding on a broker.  Sure, they should have professional experience that makes you feel confident about putting your business in their hands, but you should also feel comfortable on a gut level working with them.  As with getting an insurance quote, it is highly recommended to meet with at least three business brokers before deciding on which one feels right for you and your business needs.  Although your broker should have your best interests in mind, don’t forget that ultimately, you’re the one who calls the shots.