Selling a business is quite a complex and demanding process, one that has a substantial financial impact. Also, this process requires a number of documents, which most business owners find hard to understand. Please note that how well you prepare these documents will determine the success of the entire sale process.
In this post, we shall highlight the most essential documents that you need to sell your business. Read on for more information.
Letter of intent
This is a legal document listing all the terms and conditions of the sale, due diligence terms, the deposit requires, as well as any other additional and relevant terms of the sale agreement. Mostly, the buyer is required to submit a letter of intent to the seller for their approval.
Confidentiality agreement
Also known as a non-disclosure agreement (NDA), a confidentiality agreement (CA) is an agreement between the buyer and seller. This agreement demands either the seller or buyer or the two parties to disclose their confidential information whenever required in the course of the transaction.
When selling a business, you might be required to sign a non-disclosure agreement with your potential buyers. It’s important to use this document before agreeing to provide any information to another party. It will give you the required protection when it comes to how the buyers use the information you provide them with.
However, you shouldn’t overrate the protection that you get from a non-disclosure agreement. Yes, you might have one of the best confidentiality agreements—but that doesn’t mean you should go around dishing out whatever information requested by potential buyers. Please note that although your NDA might protect this information, it’s a good thing to release your business’ information in phases, and to the parties that continue to show interest in buying your business. Besides, when creating your confidentiality agreement, you should engage your attorney to make sure that the agreement covers the information you want to protect.
Financial documents
Any buyer interested in buying your business will need to know the financial status of your business. With that said, you will need to prepare the following financial documents to shed more light on your business:
Profit and loss statement
Also known as an income statement or statement of financial performance, this document contains the summary of how your business performed financially over a specific period—mostly a two-year period. Typically, you can break down this information into monthly, quarterly, or annually. The profit and loss statement shows how your business has performed in the past and helps one to evaluate the loss or profit of the business over a specific period. Generally, the statement of income summarizes the income of your business for a specific period and deducts all the expenses incurred within that period to determine the loss or profit for the business.
Balance sheet
A balance sheet provides a clear picture of the financial status of your business. Besides, buyers can use this information to evaluate the liquidity of your business. Moreover, the document helps prospective buyers to understand the financial position of your business.
Typically, a balance sheet covers the assets that your business owns and liabilities (what your business owes), as well as the net worth of your business or the value of your (owner’s) equity over a certain period of time. A balance sheet is also referred to as the statement of financial position since it gives the summary of the financial position of your business at a certain point in time. Now, the difference between the business’ assets and liabilities is what we call the owner’s equity. And it is called a balance sheet because the equity should be equal to the assets minus the liabilities.
Service contracts
There’s a chance that your business has several leases for furniture, equipment, as well as personal items. If that’s the case, prospective buyers will need to know this information during the transaction process because they might need to adopt these leases. So, you need to get these documents to avoid possible bottlenecks down the sale process.
Sale of Business Agreement
When selling a business, both the seller and buyer must sign the terms under which the business sale is agreed. Now, this is done through the Sale of Business Agreement, a document that covers numerous commercial and legal issues. Please note that this is the most important legal document required to sell a business. However, most business owners have a big challenge when it comes to creating this document, especially if they haven’t created one before.Â
Therefore, it’s important to seek legal advice and assistance when drafting or reviewing your Sale of Business Agreement. This document is very complex, and there are severe legal implications for getting the document wrong. Therefore, you must understand what the agreement comprises before the sale process gets to the final stage. This will help you to have a better approach during the negotiations. Besides, a well-drafted Sale of Business Agreement will reduce the chances of unwanted constraints down the line.
Bottom Line
Selling a business is a very complex and demanding process, one that involves numerous technical and legal documents. Now, without a good understanding of the documents required, you risk derailing the entire process. Therefore, you need to engage a professional business broker like Orlando Business Broker and attorney to assist you in drafting or reviewing all the documents needed for your sale.Â
