Selling a business is exciting, but the process can be a large undertaking. It can also be a bit of a balancing act between protecting yourself, running your business, and working with the buyer to settle on terms for the sale.

What is the process for selling a business?

The common legal steps involved in selling a business are:

1. NDA and initial discussion. The parties first start talking to see if they might be a good fit. An NDA (non-disclosure agreement) is recommended if any confidential information is shared at this stage.
2. LOI/Term Sheet. A mostly non-binding agreement between the buyer and seller used to lay out the major terms of the deal. There are sometimes binding terms in the LOI/Term Sheet to facilitate the purchase process, like confidentiality to protect business information or timelines for due diligence.
3. Due Diligence. The process of the buyer investigating the business to further evaluate the business and assess any risks.
4. Purchase Agreement. The definitive, binding agreement between the parties with all of the terms of the deal. 
5. Closing. Official transfer of the business.
6. Post-Closing. Make sure any/all necessary legal forms are filed to formalize the transfer with various government agencies, potentially transition support from the seller.

Why hire an attorney to Sell a Business?

It’s important to have an attorney help with the process of selling a business. At G & G Law, we assist along the way, focusing on the following:

• Efficient process. It’s not unusual for deals to fall apart. Given the time, expense, and energy involved in the selling process, we aim to help you either (1) end up with a deal that works for you or (2) determine as quickly as possible if the deal won’t work out so you have the option to walk away before investing more time and money into the process. To do this, we start with a call to discuss your business, goals, concerns, and deal-breakers. We’ll make a note of all of those, so we can check in throughout the process.
• Fully understand the terms, risks, and liabilities. We provide you with updates throughout the process, and talk through any legal documents before you sign them, to make sure you are aware of and comfortable with all of the terms of the deal.
• Protect yourself. This often starts with providing potential buyers with an NDA and discussing what information to share with them, so they can’t cancel the deal and take your information to start up a competing business nearby. Along the way we also make sure to talk to you about what to share during due diligence and incorporate terms that will protect you from unnecessary liability in the purchase agreement.
• Make sure every step is taken care of. This includes addressing any legal requirements, making sure each step is handled so the seller is protected from liability, and so on.

Ultimately, create a pathway to successful exit from your business.

G & G Law’s M&A Approach

At G & G Law, we aim to help you either (1) end up with a deal that works for you or (2) determine as quickly as possible if the deal won’t work out so you have the option to walk away before investing more time and money into the process. 

To do this, we start with a call to discuss your business/prospective business, goals, concerns, and deal-breakers. We’ll make a note of all of those, so we can check in throughout the process if any red flags arise, and discuss your options with you if they do. From there, depending on where you are in the process, we can:

1. Provide you with an NDA, and tips on other ways to protect your confidential information.
2. Help you negotiate the big picture terms for the Letter of Intent (LOI) or Term Sheet, with the assistance of your broker if you have one, focusing on our notes from that initial call.
3. We can help with due diligence. We provide our buyer clients with a detailed spreadsheet that not only contains a list of documents and information to request but also provides a means to track and evaluate the information received. We review the due diligence for any legal concerns and help you to evaluate whether they are deal breakers or if terms can be adjusted to reduce or eliminate any risk associated with them. We also recommend and can complete additional due diligence for things like litigation searches, license/permit status, and other things that might impact your new business after closing. And we provide tips on other steps you can take, such as seeing the business/inventory in person or getting introductions prior to closing to venders or employees. Finally, we an advise you of common practices and the options available to you. If red flags do come up, there are often creative solutions that can be incorporated into the purchase or sale to protect you.
4. Draft or review the purchase agreement, incorporating all of the terms relevant to you and/or the business, plus your goals, concerns, and deal-breakers. We can also look for any unusual terms or terms that would increase your liability. And when it is time to negotiate the purchase agreement terms, we can talk to you about the best approach. That could include you talking to the other party directly, getting your broker involved, or us negotiating with the other party or their attorney. If you are feeling any time pressure from the other party and/or brokers during this negotiation, we can discuss standard timelines with you and jump in as necessary to field and respond to time-pressure emails.

5. Provide you with the legal documents you will need for closing, and either talk you through the closing or hold the closing at our office so you feel comfortable with the process.
6. Make sure every step is taken care of (appropriate lease; entity formation if needed; partnership agreement if purchasing with a partner; licensing in place; etc.)
7. Forms are filed, like bulk sales tax notice if required or Articles of Amendment
8. Franchise transfer
9. Intellectual property transfer
10. Ultimately, create a pathway to successful business ownership and operation.

How Much Does an M&A Lawyer Cost?

Our mission is to make quality legal services accessible to small businesses. One way we do this is by offering transparent, common-sense fees and charging flat fees as much as possible. Unfortunately, it is impossible to offer business purchase or sale services for a flat fee. The process and amount of negotiation involved tends to vary quite dramatically, so there is no way to predict how long any given purchase or sale will take. Instead, we bill hourly for our services but have built-in check-ins to ensure we’re being efficient with our time and meeting your needs. 

We do work with our clients to keep fees down in a number of ways: 

• Include as many terms in the LOI as possible to reduce the amount of back-and-forth negotiation while finalizing the purchase agreement. 
• Focus on “deal breakers” first during due diligence and negotiations. 
• Educate and empower you throughout the process: let you know if there are tasks you can take on during the process and be clear about where it’s more efficient in the long run for us to step in and help. 

Also, unlike some other firms, we work to keep our incentives aligned with your incentives. Since we don’t get paid once the deal goes through, we don’t push to close the deal at all costs. Of course, we hope the deal is a good fit for you and you sign the papers and get the keys to your shiny new business! But if it’s not the right fit, we want to help you find out as soon as possible – we don’t want you to waste time, energy, expenses, and attorney’s fees on a bad deal. 

Our hourly rates are as follows:

• Business Purchase Fee: $485/hour
• Evergreen Security Retainer (requires monthly replenishment, may be higher for particularly complex or fast-moving deals): $4,850+

When should I hire an Attorney?

We recommend hiring a lawyer as early in the process as possible – ideally, before signing any documents – so we can best help you accomplish your goals while avoiding any deal-breakers or redflags. Sometimes it makes sense to start talking to lawyers prior to finding a buyer. M&A deals tend to move quickly and intensely once they get rolling. The more preparation, the better! 

If you’re thinking about selling your business in the next few years, we can help with a due diligence preparation audit to help you get the most value from your business assets while preparing for a smoother deal process. 

That being said, we’re happy to jump in later in the process too. Don’t hesitate to reach out no matter where you are in the process.  

 Reach out if you’d like to see whether the experienced lawyers at G & G Law, LLC can help with your purchase. 

FAQs

Q: How do I buy or sell a business without a broker? (Do I need a broker?)

Brokers are not required for a business purchase. In our experience, brokers can be very helpful in looking at market values and finding a business for you to purchase or a buyer for the business you are selling. Some other options might include:

• Employee buying business
• Look at competitors to gauge interest
• Online forums for buying and selling businesses
• Private equity or venture capital groups that buy businesses

After the business and buyer are connected, a broker may be helpful with communications or negotiations, depending on the broker and the situation. There are pros and cons to using a broker at that point. The benefit is that the broker will typically spend time and energy to help facilitate the deal, and only gets paid if the deal closes. However, that’s also a bit of the downside, as some less helpful brokers can often rush deals and/or push for deals that aren’t in your best interest to ensure the deal closes and they get paid.

If you already have a potential business you would like to purchase, your attorney can handle communications and negotiations, and/or can give you tips to handle it yourself if preferred.

Q: How is valuation determined in a business purchase?

A: There are a lot of different methods that buyers and sellers will use to determine a price. For example:

There are companies that specialize in performing business valuations. These can be costly and are subjective, but are frequently a good starting point, especially in larger deals.

There are some common formulas used to determine pricing such as book value, EBITDA, the discounted cash-flow method, or disposable earnings model, although these often don’t take the specifics of the business into account (such as whether the business is a service-based business where the owner is a significant factor or the debts or other liabilities of the business).

• Book value is simply the value of the assets on hand for the business. This is generally going to be the lowest value.
• EBITDA is a measure of the company’s core profitability. It stands for earnings before interest, taxes, depreciation and amortization. Typically, this is typically multiplied by a factor of 1-4.
• The discounted cash flow method is calculated by estimating future earnings and then applying a discount rate.
• The disposable earnings model (also called residual income valuation) is calculated by looking at the shareholder or member earnings expected for the next 3-5 years and applying a discount to account for present value.

If similar businesses in the area have recently sold, they can be used as “comparables”, which may be helpful in determining valuation.

However, the truth is that the value of a business is what one party is willing to pay, and the other party is willing to accept.

Q. Can I buy a business with no money? (Or, how do I get a loan to buy an existing business?)

The short answer is that you can buy a business without hundreds of thousands of dollars, although some money is likely needed for attorneys’ fees, filing any required forms with the city or state, and possibly a down payment for the purchase.

But in terms of the purchase price itself, there are a lot of financing options for individuals looking to purchase a business.

The business can be paid for fully in cash, in which case the buyer typically transfers the purchase price to the seller at closing.

The business can be paid for with what is called “seller financing”, which means the buyer pays the seller over time. Oftentimes, this is treated as a loan from the seller to the buyer, with personal guarantees and/or the business being used as collateral to provide the seller some security for the financing. The benefit of these loans is that the terms can be negotiated between the buyer and the seller, meaning that interest rates and the length of the loan term can be negotiated.

The business can be paid for with third party financing, which typically comes from a bank. In this case, the buyer would take out a loan from a bank to pay for the purchase, and would pay back the loan over time. Banks often require personal guarantees and/or use the business as collateral for the loan. There are also some organizations that can help a buyer obtain financing, or provide better terms for the loan, such as the Women’s Business Development Center (WBDC) or the Small Business Administration (SBA).

Sometimes a combination of these payment methods are used in business purchases.

Q. What’s the difference between an Asset v Stock Purchase?

Learn More Here

Q. What if I’m buying a business?

Learn more about buying a business!