Are you selling your business?

There comes a time in every person’s life that he feels like quitting the thing he builds on his own. Yes that’s right his own business. Now first thing that comes into mind is how anyone would do that. I mean you spent countless sleepless nights just to make sure your business becomes successful and turn into a money churning success. But in doing so often your family and social life is neglected and by the time you realize it; a lot needs to be desired then. Sometimes it seems as though the only socially acceptable way to exit a privately held business is to hang on until you're well past your prime, eventually giving the reins to your offspring so you can play golf for a few years before retiring into a home to wait to die.

But apart from that there can be countless other reasons you want to quit your business. There might be cases you get bored of you venture, or you are not medically fit to resume your duties or you are tired of your current partners and surroundings and need a change. But ironically in business circles selling a business is not taken with good spirit. There is always a suspicion in the minds of the sellers about the reliability of the business for sale. The potential acquirer wants to find out if you have a predictable, economical and scalable formula for finding new customers. They would like to understand the depth of your team and determine specifically which members need to be motivated and retained post-purchase. Similarly the acquirers would like to evaluate whether the buying your company would relate to their company goals.

So while selling there needs to be a detailed explanation of every part of the business. So all parties are sure of what they are selling, what they are buying, and what they can or cannot do. A buyer must be able to state how they will pay for the business, a seller must state what they are selling, and everyone has to be sure they are complying with all correct laws and legislation.

So before selling evaluate why would you need to sell your business. Following are few assumptions that lead to such conclusion;
• You're bored, burned out by your business.
• You want or need to move to a different geographic area and your business is reliant on its current location.
• You're facing health or financial challenges.
• A pending or recent divorce or family or personal change prompts your need to sell.
• Monetary issues.
• Relations with your partners.

Now after evaluating one need to evaluate the business itself and see it with buyer’s eye. Pinpoint the issue need to be resolved if you want to buy your own property. Selling a business is as difficult as acquiring and setting up of a new one. Main reason for that is you never know whether you will be compensated justly for your business. Also to convince the buyer of viability of the business success after wards need a lot of convincing to do. This includes negotiation and evaluation of warranties, Employee and third party contractors and lease agreements. A buyer is always looking out for a sensible choice and would like to contemplate on options that are of least hassle for him. This makes a seller even more particular about little Nitti gritty details of his business which he intends to sale. In scenario like these a sale agreement creates a legally binding relationship between a seller and buyer, hence resolving all issue regarding a sale process.

Following are the key issues need to be resolved in a sale process
• Fair price tagging of the commodity on sale.
• Risks and warranties.
• Undisclosed and disclosed debts and liabilities associated with the business.
• Employees and contractor contracts and retention.
• Litigations and licenses issues related with the company.
• Intellectual property of the business and its ownership issue(whether it is owned by individuals of the company or company itself)
• Tax returns.
• Indemnities and fall back mechanisms in case sale agreement is breached.

How a sale agreement resolve all these issues
The business sale contract is the legally binding document which, once signed, sets out the contract for sale, specifying:

• The assets that are sold
• The price
• The terms of payment
• The effective date
• The conditions under which the sale will actually be concluded.

A business sale agreement helps resolve the above mentioned issues in an amicable manner, as legal aids of both parties formulate a way out that safeguards interest of both parties. After reviewing liabilities and assets of the business a price mechanism is evaluated. These determinants involve the value of debts, employees and third party contractors along with any assets and other liabilities on the business. After careful evaluation of all these determinants and other legal contracts involved in working mechanism of the organization a comprehensive sale agreement is formulated.


How a seller can minimize his risks while selling the business
A seller should limit the duration of the period under which any claim can be brought to a specific period, say one or two years. Hold back considerable amount in an escrow account. Holding money in an escrow account is to allow you to have some certainty that should you need to make a claim there is money to meet it. Sellers will therefore want to have this money released from the escrow account as soon as the period under which any claims can be made is reached, or even on a sliding scale basis in the period leading up to the end of the claim period. But that doesn’t mean tie too much money in the account if it is a interest bearing one. And remember you will quite a lot of small breaches in warranties and guaranties after the sale process but try not to be bogged down by them.

What should be the contents of a sale agreement?
Following are the key components of a sale agreement
• Interpretation
• Agreement for Sale
• The Purchase Price
• Items to be delivered at completion
• Completion
• Stocks
• Debtors
• Creditors and Liabilities
• Value Added Tax
• Warranties by the Seller
• Future Activities
• The Guarantor
• Communications
• Miscellaneous Matters
• Jurisdiction
• Warranties covering
• Assets
• Stocks
• Accounts
• Employees
• Suppliers and customers
• Licenses, consents and passwords
• Insurance
• Joint ventures and partnerships
• Statutory restrictions
• Litigation
• Seller’s activities
• Contracts
• Defective products and service liabilities
• Properties
• Leasehold properties
• Freehold properties
• Intellectual property
• Internet domain names