This is a question we hear from business owners who have been approached about the possibility of selling their business. Prospective sellers are always concerned about selling at a satisfactory price and on satisfactory terms and conditions.
Business sales and purchases take a fairly standard and logical step by step approach.
We have guided many first time sellers and buyers of businesses through this process. It typically goes as follows:
1. Non-Disclosure Agreement
The seller should have the buyer sign a confidentiality/non-disclosure agreement, pursuant to which the buyer will hold any information supplied to him by the seller in confidence, and pursuant to which the buyer will agree to return such confidential information regarding the business to the seller should discussions and negotiations break down.
2. Discovery / Sharing Information
After the confidentiality/non disclosure agreement is signed by both parties, the seller will be in a better position to share financial statements and or tax returns and or other relevant information and materials with the buyer.
3. The Letter of Intent (The Offer)
After the buyer has had the opportunity to review these materials, the buyer will typically make an offer for the business and present it to the owner in the form of a letter of intent. The letter of intent will outline the essential/material terms of the contemplated transaction, notably the purchase price and how it will be paid and other relevant terms and conditions. It can also give the buyer a period of exclusivity to negotiate and attempt to close the transaction. This exclusivity provision, also referred to as a "no shop clause," will protect the buyer from the possibility that he will spend time and money on the transaction only to find that it has been sold to another buyer.
4. The Purchase Agreement
After the parties agree to and sign the letter of intent, buyer's due diligence review will typically continue/ proceed in earnest while buyer's legal counsel drafts an asset purchase agreement which will spell out in considerable detail all of the terms and conditions of the contemplated transaction and will provide for related indemnities, etc.
5. Other Closing Documents
There will most likely be several other closing documents that will have to be negotiated and signed at the closing, such as a lease or real estate purchase agreement for the related real estate, a consulting and non competition agreement between the seller and the buyer, a bill of sale, an assignment and assumption agreement, etc.