29 Jul Five contingencies you may encounter when you sell a business with several tips for success.
When a Buyer makes an offer to buy a business, the Buyer will probably include certain contingencies in the offer. This is a quick review of the five main contingencies you may encounter. We included some tips to support you in selling a business for the best price and terms. Being prepared to address these in advance will help you negotiate a better deal for yourself.
Subject to due diligence and complete buyer satisfaction.
- Get specific. Have a date for when they will provide you a complete list of what is required.
- Have a specific timeline when they will be complete with the due diligence.
- Make sure the length of time is reasonable. Don’t allow it to be any longer than it needs to be.
- Ask them in advance to reach out to their small business accounting professional during the other people that will help them and make sure those people are not on vacation or tied up or in the middle of tax season or for some other reason won’t be able to help them within the timeframe.
- Be prepared. Get your business taxes and bookkeeping information ready. Work with your business accountant to be ready for the due diligence process. Update your QuickBooks.
Contingent upon getting bank financing.
- Ask the Buyer to reach out to at least two banks for SBA loans within a few days of coming to an agreement.
- Get your business SBA prequalified for before you go to market with your business for sale.
- Insist that the Buyer at least interview the banks that prequalified your business.
- Put a specific time frame for getting a Letter of Intent for the bank.
- Include a time frame of getting loan approval.
- If you have commercial real estate included, know your value.
- Asked to be updated regarding the progress of the bank.
- Keep informed. Buyers will often put off things like getting life insurance, or creating their Business Plan, until the very last minute which can sometimes delay approval
Contingent upon landlord approval.
- If there’s a lease involved, talk to your landlord well in advance of your planning to sell.
- Understand the landlord’s approval criteria
- Have application handy for the Buyer
- Know how long it will take the landlord for approval. Know when you need to introduce your prospective buyer to your landlord.
- Do not wait until the last minute just in case there’s something the landlord won’t accept about the prospective buyer.
- Of course, this only applies to people that are selling a business with a franchise.
- Have the franchise application on hand.
- Know the guidelines and rules for franchise approval.
- Find out how long the franchisor needs for approval.
- Will the Buyer have to go to training before taking over
- Keep a good relationship with your franchise representative
- Get a list of all the things that need to be done to make sure that the prospective buyer is following the guidelines completely
Subject to getting visa approval.
- These of course only apply to buyers coming from other countries who will need to get approved for their visa.
- This process can take several months, especially during difficult times, like when the coronavirus is rampant around the world. Timing can be hard to predict.
- Make sure the prospective buyer has an Immigration Attorney working with them.
- Verify that the foreign Buyer has the funds required to purchase a business.
- Confirm with Immigration Attorney regarding how long the approval process takes.
- Work with the immigration attorney and the closing attorney. Quite often these businesses are closed in escrow meaning that the deal and the money go through if they are approved.
- It is not unusual to request that at least some of the deposit go to the Seller (you) if the visa is denied.
Here are a few last tips
- Some of these contingencies might not apply to you and you. Realize that there might be other contingencies not mentioned here that apply to your business for sale
- Think through the contingencies with your business broker, your business accountant, and your business attorney.
- Create a calendar.
- Insist on being informed throughout the process.
- Stick with the time frame.
- If you need to adjust the timing or terms partway through the process, create an addendum, and have both parties sign in agreement to the change.
If you consider these guidelines and craft the contingencies that are fair for you and the buyer, you will be glad you did. You can always find more tips and ideas at BuyBizUSA.com. Feel free to reach us anytime. You may also text SELLMYBIZ to 22828 for your free eBook on selling your business. Please also feel free to come to visit Legacy Business Brokers in Tampa FL when you are in town. Good luck.