Buying or selling a company involves a process. Before we sell our company, it is important to define the sales process. The type and size our business also has an effect on whether our business can be sold easily and quickly. Some investors want to have multiple smaller businesses to diversify their portfolio, while others want to focus only on a bigger business. When preparing for business sales process, we should consider about the non-disclosure and confidentiality agreements. Improper disclosure of confidential content of negotiations and discussions could cause irreparable harm to our business, brand and reputation. Sellers have the right approve buyers that are the most prospective. Buyer’s capability and resources should also be included in the confidentiality and non-disclosure agreements. The actual business acquisition process is often started with an initial meeting. In this case, both sides will know about the actual motivation of each party. The initial meeting can bse used to know more about the seller and buyer. Each party will also find out whether they can work with another.
If things go well, the results of the meeting should warrant further consideration. Buyers would begin the evaluation process and the financial structure of the business will be unveiled at certain degree. After a few initial meetings, the letter of intent or the purchase contract would be presented. One factor that business owners need to consider is that the letter of intent may contain an escape clause. It determines how each party could withdraw from this deal, if specific conditions are not fulfilled. The LoI should also include other important components of the sales process. The LoI should define what’s being purchase by the buyer, such as assets, liabilities and operations. It is possible the buyer won’t purchase the company as a whole and they may only be interested only with a part of the business. Financial liabilities could also drive down the price of the business and this could be mentioned in the LoI. The format of the business acquisition could also be mentioned in the LoI, whether it is the actual transfer of assets, merger or sale of stocks.
In the early process of business acquisition, we may also need to perform the due diligence process. In this case, pertinent contracts, corporate records and all financial records would need to be prepared. A review of the business may be requested, once the LoI is signed. At this stage, the buyers will have greater access to evaluate the company. This will confirm whether things has been properly represented. If the buyer is still interested with the business sales process, it is quite likely that the purchase price would be negotiated. Factors like future potential earning and historical financial information could also change the price of the company. If the buyer is determined enough to purchase the business, an escrow account would be established with a specific amount of Good Faith deposits. Both sides will also agree to share costs related to business acquisition, such as professional fees for appraisers, accountants and attorneys. The timing and conditions for closing, should also be clearly defined. These factors can be negotiated by both sides.
