Legal Documents Needed to Sell a Business
The checklist above is not exhaustive and “depending on the type of business you are selling”, you will likely need specific documents and information to sell your business. For more information on selling your business, call us at (800) 976-4904. Residential and commercial sales are less and less in-person transactions. In the real estate industry, transactions are processed via Zoom or similar technology. The same people will be involved – buyers, sellers, brokers, lawyers – but they will not be in the same room when the agreement is signed. The legal documents required to sell a business may include some or all of the following: To ensure the integrity of your financial records, it would be wise to seek the help of a small business CPA. A professional CPA can help you identify gaps or gaps that could be improved. In addition, buyers often place more importance on finances that have been audited by a qualified accounting professional. Professionally verified financial data often has more validity and the potential to increase the asking price. Accounting and tax documentation is an essential part of the due diligence library as it indicates the financial health of the company.
Ultimately, potential buyers are more likely to see the target business as a financial investment, as they expect a positive return on investment. Financial documents are most likely to provide information about the profit potential of the target company. A purchase or sale contract is used to negotiate future sales or purchases. This type of document can be used in the early stages of negotiations to secure the assets and conditions of the company, but it is only a draft or promise of what the final transaction will be. This document does not legally recognize the new ownership or transfer of a business. Comprehensive and organized records, including sound finances, are an essential part of the sales process. If you adopt this practice in advance, you are more likely to impress potential buyers with a well-run business and a viable one. At the same time, you can develop strategies that increase the value of your business, making it easy to sell at the full market value you deserve. Of course, the buyer collects all kinds of information about the small business. These documents are the point of the I`s and intersect with the elements of the T, and it is extremely important that they are executed correctly. Intellectual property documentation is an integral part of the sales process. After reviewing all assets, complete a closing agenda.
This will help track registrations, taxes, insurance payments, and similar requirements required to close the sale of the business. The buyer must apply for a tax refund to serve as protection against unknown tax liabilities incurred by the company prior to the closing of the sale. When a company is bought, it is sold along with its employment contacts, employment policy and corporate culture. Payroll is one of the most important cost bases of a business once it reaches a certain size. Potential buyers are potential employers and therefore want to have an overview of the work environment of the target company. Either way, you need facts and figures to support sales. You can list all business assets, tangible and intangible, and assign value to them. You can audit accounts, weigh future benefits against costs, and evaluate them. Many companies have contracts with companies that offer them goods or services.
For example, a company may enter into a contract with a cleaning company for service or a contract with a machine shop for parts. Customer lists. In many business transactions, the attractiveness of your business to potential buyers will be your customer list. The company`s customer list is the difference between the buyer who has just started their own business and the purchase of your business. An extensive and organized customer list will undoubtedly add value to your business and money in your pocket. The Secretary of State must be informed of the sale of a business, including changes in ownership of LLC. Taking the time to gather and organize the right documents will make your business more attractive to potential buyers. Solid documentation of a profitable track record is perhaps the clearest way to illustrate the financial value of your business. Being prepared with an organized set of documents not only reflects you and your business well, but also avoids unnecessary stress. Many of these documents would already be in place if the salesperson had a CFO or CPA who has kept the company`s books and reports over the years. Otherwise, there are a number of accounting firms and finance professionals that specialize in preparing companies for mergers and acquisitions. These consultants can work with a company`s existing accounting and tax records and create the documents required above.
Also, with small business sales, it`s typical for the seller side to create a personal financial report form that potential buyers need to fill out. Accounting information. If you`re trying to predict the future (as the buyer should), the best place to start is to look into the past. If you know this, you should have prepared your company`s latest finances so that you can provide this information at all times. It can take weeks or months for your accountant to have time to do them for you. You need more time when restructuring your finances. The easiest way to do this is to seek the advice of a business valuator. This person`s advice will be impartial and based on experience and training. Does the buyer have the assets to make the purchase or could the transaction collapse? The seller doesn`t want the excitement of agreeing to a purchase to die down when he learns that the buyer doesn`t have the financial assets to pay the business. For many homeowners, this can be the most difficult step in selling your business. In addition to tangible and intangible assets, employees are the true capital of a small business. They should be treated as valuable assets.
You`ll need documentation of everything relevant to your business before you put it up for sale. You need: If you`re not selling your business to your family or an employee, hire a broker. A broker can also advise you on determining the value of sales. The broker may review similar sales within the industry. Let`s go over the basic documents you need to organize when selling your business. It`s all part of the process, and this list can help you get started before you meet with a broker and lawyer: What`s the plan to eliminate all the waste produced by the company? The company should already have an established waste disposal system. A professional valuation expert will give credibility to your award. The price is not only your opinion, it is an objective evaluation by a person who knows the price of companies for sale.
This type of review is respected by buyers. Receiving your financial records and verifying their accuracy will not only help you determine a fair price, but also identify some pitfalls and develop strategies for improvement. Why not improve the value of your business now while keeping an eye on future sales? Once your records are in order, you have the opportunity to identify and improve your revenue multipliers. Price-to-earnings ratios depend on many factors, and proper preparation gives you time to improve the value of your business. Intellectual property such as your trademark, copyright or patent may be transferred to the buyer after the sale. At closing, you must file separate assignment applications to transfer ownership of these assets to the buyer. A business attorney in South Carolina can also help with this aspect of the process. It is also important to know the difference between a business purchase agreement and a purchase or sale agreement. A business purchase agreement is used to complete a business sale and transfer. It describes the terms of the transaction at the time of sale and officially makes the company the new owner.
There may be some documents that are not listed above, but are very important to pass on to the buyer. For example, you may have recently created a business plan for the future growth of your business. If this is the case, you must also provide it to the buyer. The more information you can provide to the buyer, the more attractive your business will be to them. If you`re not selling a business to a family or employee, you`ll need a business broker. Yes, you have to pay a commission. If the sale is less than $1 million, the commission is about 10%. The business broker is a real estate and trade specialist who knows trends well and knows the people who want to buy or sell a business. Many businesses need certain licenses to operate, and the same is probably true for yours. You can transfer some types of these licenses to a buyer, while others are considered non-transferable. For example, if you operate a restaurant that serves cocktails, you need a liquor license, which you cannot transfer to a buyer. However, it is important to inform buyers that they must purchase a license and any information you have about obtaining a license.