Written by Michelle N. Ogborne

Traps to Avoid When Selling a Business

When you literally and figuratively opened your doors for business, it was an exciting time! Business formation, when done right, paves the way for a healthy, growing organization that should eventually show profits. After so many years of exhibiting a steady growth and substantial financial gain, you may have interested buyers or may be ready to sell.

Selling a Business and Due Diligence

Performing due diligence on your own business provides self-awareness.
It forces you to recognize the realities of your company . . . warts and all
. –Forbes

You need a team that works the sale of your business from the letter of intent to sign-off. A good team would include your accountant, attorney, and financial advisor, for example. One of your team’s tasks is to identify all the problems the buyer may address so you are prepared to discuss them knowledgeably – your goal in this effort is no surprises later. Examples are:

  • Customer base too weak
  • Industry slump
  • Management issues
  • Pending lawsuit

If you were selling your house, you wouldn’t point out a leaky faucet to a prospective buyer. But if the buyer notices a leaky faucet, you should be prepared: “Yes, that’s on our list of to-do’s for this week.” When you find flaws that have an easy fix, fix them. Due diligence also includes preparing a paper trail:

  • Articles of Incorporation
  • Buy-sell agreements
  • Bylaws
  • Employee handbooks
  • Employment contracts
  • Lines of credit
  • Loans and loan agreements/notes
  • Meeting minutes
  • Operating agreements
  • Organizational paperwork
  • Projections, 3-5 years
  • Real estate/property ownership, leases
  • Stock ownership
  • Supplier agreements
  • Supporting documentation for assets

Curing a problem is clearly better than disclosing a problem. And who knows . . .
your due diligence may reveal your business is more valuable than you thought! 
-Steve Parrish

Methodologies of Selling a Business

If you’re considering selling a business – or even if you’ve been blindsided by an offer to purchase – don’t release any confidential information until you have done your homework. An agreement not to disclose any confidential information about the company, its operations, its brand, and its finances should be put in place before any discussions of buying and selling occur.

Before a face-to-face meeting involving paperwork, your financial information should be current and accurate. There are several ways of selling a business in Arizona, including:

  • Outright sale – If your heirs or other family members have no interest in the business, this may be the best way to sell.
  • Sell your assets – You will be selling your company’s property, equipment, customers, goodwill, and brands. Tax-wise, this method may be buyer-advantageous. When you do this, you must also put something in place, legally, to protect yourself from future claims against the business. Example: A disgruntled employee files a suit after the sale concerning an incidence that took place before the sale. Who has responsibility?
  • Sell your stock – If you sell your stocks, you should be divested of the company itself, including liabilities. This method is seller-advantageous.

The Legalities of Selling a Business in Arizona

Selling a business requires navigating many legal factors as well as creating binding, valid agreements and contracts.  As recipients of numerous awards including recognition for ethical standards and family law, you can count on the team at Ogborne Law to protect your business and personal assets, now and in the future.

What You Need to Know if You Have Employees

If you’re managing, buying, or selling a business in 2018, join other local small businesses at our free Lunch & Learn. This free meeting is presented by Ogborne Law & Flourish Business Services, so RSVP to reserve your space.