The buyer loves your business; it’s just what he or she has been looking for. He has reviewed your financial statements and has made an offer contingent on several items. The contingencies in the deal mean that the buyer or his or her advisors have some concerns. In larger deals, this process might be called due diligence. However, in the smaller business sale, the items of concern are usually spelled out as opposed to a general review of everything.
Most contingencies concern the review of financial statements and/or business tax returns. Others may involve lease issues, the seller staying on for a set period of time, or some very specific issue such as repaving the parking lot, if the landlord won’t or isn’t required to.
Unfortunately, some contingencies may be hiding other ones such as a list of fixtures and equipment included in the sale. Deals have fallen apart over these smaller contingency issues.
Most contingency problems can be resolved prior to the business being placed on the market. The seller should do all of the following:
- Check the status of all furniture, fixtures and equipment (FF&E). Remove any that are not included in the sale or are inoperable if not in use – or make repairs.
- Review any contract such as the lease, any equipment leases, and contracts that will be assumed by the buyer.
- Be prepared to answer questions such as:
- Are there any environmental, governmental, or legal issues?
- How long will you be willing to stay and work with a new buyer – at no cost?
- Will the employees stay?
Sellers need to be ready and buyers don’t like surprises. A business broker professional knows the process and can be invaluable in preparing the business for the marketplace.