Sale Ahead? Chart Your Course Carefully and Deliberately
You don't have to be planning to sell, to plan for the sale of your business.

By James M. Selle

Businesses are sold for many reasons and under a wide array of circumstances. Growing a business with the goal of selling it at a profit may be part of an original business plan, or may otherwise become part of a business plan as the value of the business increases. With many companies looking to grow or diversify through acquisitions, many businesses become targets and owners often decide to sell their business because they receive an offer that is simply too good to refuse. Sales do not, however, involve only the prosperous.

Unplanned Sales
A financially troubled business that cannot pay its bills, or a business that otherwise becomes stagnant or unable to grow or is only marginally profitable, may look for a buyer that is in a better position to inject more capital or other necessary resources into the business. A family-owned business may find that the next generation does not have the inclination-or the ability-to take over ownership and management. Disputes among the owners of a business may also induce the owners to sell.

Accordingly, although many business sales are anticipated, nurtured and planned well in advance, others may result from necessity. Under any scenario, the successful sale of a business typically requires, or is helped by, some advance planning. While not mandatory, it is certainly helpful in achieving a successful sale.

Keeping Things in Order
Planning and attention to certain business practices can help maximize the potential sales price for a business. It can also help minimize many obstacles to a sale, allowing for a smoother, more expedient sales process when and if the time comes.

Planning and helpful practices can include dedication to maintenance of sound, supportable and commercially reasonable organizational documents, financial statements, loan documents, contracts and other books and records, all of which are items that potential buyers will most likely ask for in connection with their "due diligence" review of the business and related assets.

In reviewing such items, potential buyers will be more impressed if the business has complete and accurate records and if loan documents or other contracts include provisions that adequately protect the business and the buyer from potential liability. Shoddy recordkeeping or the practice of entering into contracts without negotiating protective provisions may signal to a potential buyer that the business has the potential for residual liability or proverbial "skeletons in the closet" that increase the buyer's risk.

All business records can have a significant impact on the economic and other terms and conditions of a sale and may even impact the buyer's willingness to consummate a purchase. Attention to such items can even impact the ability to consummate a purchase at all, or at least on a timely basis.

Organizational documents and contracts often can be structured to avoid or minimize the need to obtain the consent of others to transfer a business and its assets, including its leases and other ongoing contracts. Getting necessary consents when a sale is pending can sometimes be a problem and could delay or even derail the sale.

Although business owners must rely on internal resources for the bulk of what it takes to make sure a business has "curb appeal" and doesn't have any problems that will chill a potential sale when the prospective buyer "kicks the tires," outside professionals such as accountants, bankers, lawyers and other professional advisors also can help to keep things in order so that a business is ready for a sale. Such advisors, together with brokers and other finders, also can help identify potential buyers when needed, and assist in introductions, valuations, negotiations, due diligence, preparation of sale documents, satisfaction of closing conditions and other aspects of the sale process.

Good Business Practice
Overall, advance planning and adherence to good business practices will help to make the sale of a business more successful. Doing so will position the business to achieve the best possible sales price and to satisfy the conditions and expectations that are frequently imposed by prospective buyers. Such advance planning and practices also can help to minimize the potential liability arising from various representations and warranties that a buyer may require as part of a definitive purchase agreement. The more that a business is in order, the more likely it is that a sale can be consummated to the best possible advantage of the seller-as to price and other terms and conditions, timing, transactional costs and expenses, residual liability and other factors.

Selling a business involves much more than getting paid and turning over the keys. It is a transaction that may arise not only from long-term planning but also sudden unexpected necessity or opportunity. Accordingly, being well prepared for a sale is an ongoing business practice that all businesses should observe and from which all businesses can benefit.

James M. Selle is an attorney and partner with the law firm of Stinson Morrison Hecker LLP. Jim can be reached at (816) 691-3205, or .