Deciding to sell your business can often be a nerve-wracking experience. Like selling your home or other major asset, you want the transaction to go as smoothly as possible without any major hiccups along the way.
There are several typical items prospective buyers will want to review and verify when evaluating whether or not to purchase your business. If you need to scramble to obtain or provide these items, it looks badly on your business organization and could delay the transaction, cause your prospective buyer to devalue your business or even walk away from a potential transaction.
Before making a decision to sell, there are a few simple practices you as a business owner can and should be doing to cause any future sale transaction to go smoother.
- Keep your Good Standing. If you operate your business as a limited liability company, corporation, limited liability partnership or other registered entity, you should ensure that you maintain your good standing with the Minnesota Secretary of State by making the necessary annual filings each year.
- Document Compliance with Corporate Formalities. If you are a corporation you are required to elect directors and certain officers. You should ensure that you have written documentation of all officer and director elections. Also, as a corporation, limited liability, company or partnership, it is good practice to ensure that you have bylaws, an operating agreement, partnership agreement or some other type of governing documents in place and you document your compliance with such documents.
- Ensure Major Assets are Titled Correctly. Many businesses that operate through an entity, such as a corporation, limited liability company or partnership often use major assets or equipment that are never properly titled or transferred into the business. Any major assets should be transferred into the entity name via a bill of sale or recorded deed.
- File all Taxes. This probably goes without saying, but ensure that all tax returns are properly filed. If you owe taxes, ensure they are paid in full prior to entering into a sales transaction.
- Check Licenses and Permits. If you operate in a regulated industry that requires certain licenses or permits, you should ensure that all such licenses are up to date, valid and in your business name.
- Accounting Records. Ensure that you have updated and accurate accounting records. Most buyers will want to review your balance sheets, income and cash flow statements for the last few years.
- Document all Major Business Relationships. If a major aspect of your business relies on third parties, such as a license of intellectual property, use of certain facilities, distribution channels, supply agreements or vendors, be sure that the terms of these relationships are in writing. If you have valuable existing contracts that are already in place that likely will be transferred to a buyer, you should review these contracts to see if they can be assigned or if there are any restrictions or requirements regarding assignment.
- Consider Registration of Intellectual Property. If your business has built up a brand, has a unique product or logo or some other valuable intellectual property asset, you should consider registering such intellectual property with the US Patent and Trademark Office or other appropriate governing office to establish your ownership in it.
- Conduct your own Due Diligence. Consider conducing UCC searches on your own name and business to see if there are any liens or encumbrances that could later be an issue for a prospective buyer. This gives you an opportunity to clean up any old liens that may have not been removed and get an idea of what will need to be paid off at closing.
While selling your business can be an exciting time, it can also be a stressful time. By considering the above items in advance and throughout your business operations, you will be in a better position as a seller complete a smooth transaction and obtain the most value from your business upon closing.
The information provided within this article is a broad overview and general discussion of only some of the major issues to consider when selling a business and is not intended to be legal advice. You should seek the advice of competent and qualified counsel to review your specific situation.
© 2016 Rinke Noonan