When the due diligence investigation that follows a buyer's purchase proposal comes to a successful conclusion, information technology's time to move into the final–and very of import–negotiations that precede a sale closing.

By this phase in the sale process:

  • A buyer has chosen to acquire your business.
  • The buyer's in-depth investigation has confirmed the purchase decision, and your own due diligence has confirmed that the heir-apparent has the financial and business capability to consummate the transaction.
  • Now information technology'south fourth dimension to reach consensus regarding toll, payment structure, price allotment (and the resulting tax implications), and all the other details that comprise the final deal.

It's of import for you to sympathize exactly what's in a purchase and sale of business agreement and so you'll know what to look, where to negotiate, and why it's and then important to call on the expertise of your accountant, your attorney, and your broker, if you're using i.

Pace 1. Understand what a purchase and auction agreement covers.

The following chart describes the contents of the closing agreement. Exist aware that this listing provides simply a framework and general definition of an agreement's contents. Behind many of the items lie details that crave advice from trained legal experts, which is why your broker and your attorney are key partners at this stage.

  • For the simplest sales–those involving very few and unproblematic assets and a selling price of tens of thousands rather than hundreds of thousands of dollars–fill up-in-the-blanks forms tin exist downloaded from online sites. But enter "buy and sale of business understanding" in a search engine for a range of options. Before using understanding forms, all the same, phone call on the expertise of your attorney. Requirements vary from state-to-land and you need to be sure the agreement you lot sign complies with the letter of the law in your region.
  • For all other sales, expect the sale agreement to bridge many pages and to be accompanied by exhibits and attachments that address all the necessary points to be covered. Your broker will guide the process if you lot're using 1. Otherwise, either your attorney or the heir-apparent's chaser will write the first draft and the other attorney will review and suggest amendments–unless you and the buyer agree to both work with and separate the legal fees of a single attorney.

SALE AGREEMENT CONTENTS

Names

Names of the seller, buyer, and business organization including the location of each.

Avails

List of all assets included in the sale including fixtures, furnishings, equipment, mechanism, inventories, accounts receivable, business proper noun, customer lists, goodwill, and other items; also includes assets to be excluded from the sale, such as cash and greenbacks accounts, real estate, automobiles, etc.

Liabilities

List of liabilities existence assumed by the buyer, often including accounts payable; likewise includes a argument that the buyer assumes no liabilities other than those listed.

Endmost appointment

Argument of the engagement the sale volition shut.

Price

Statement of the purchase price and how the buyer and seller agree to allocate the toll among IRS-determined asset classes.

Adjustments

Detail of how the price will be adjusted on closing day to reverberate prorated business expenses and, if inventory and accounts receivable are being sold, to reflect closing-mean solar day valuations.

Seller agreements

Detail of non-contest or covenant not-to-compete agreement, direction consulting agreement, or the employment agreement that the seller will sign as office of the endmost deal.

Payment terms

Description of the amount of cash to be paid on endmost day, the amount payable following terms detailed in a promissory annotation, and the corporeality to be paid in other, defined future payments.

Security agreements

If a portion of the purchase cost will be paid through deferred payments, the understanding will include a description of buyer-owned assets listed as loan collateral; personal guarantee requirements if whatever, and business-operation requirements to protect against business and asset devaluation before toll is paid in total.

Inventory

A list of all inventory included in the sale.

Accounts receivable

A description of accounts receivable included in (or excluded from) the sale, accompanied by a clarification of how payments for collections will exist applied and how uncollected receivables will be handled.

Seller'southward representations and warranties

A argument verifying the seller'due south power and legal right to authorize the sale; that the seller has clear and marketable title to assets being transferred; that fiscal records presented fairly reflect the financial status as of the date of the statements; that the seller knows of no obligations or liabilities across those disclosed equally exhibits accompanying the purchase understanding.

Buyer's representations and warranties

A statement verifying the heir-apparent's power and legal right to authorize the purchase; warranties that statements made by the buyer and buyer's guarantors contain no untrue statements or omissions.

Seller'south covenants

A statement of provisions the seller will undertake to transfer the business including transferring employee benefit plans, paying employee wages through the closing date, irresolute the seller's business name to permit the buyer to legally presume and begin using the proper name, and other agreed-upon deportment.

Employee termination clause

A statement confirming that on closing day seller will terminate all employees except those with transferable contracts, paying all wages, commissions, and benefits earned through the termination appointment, at which time the buyer will likely complete paperwork to hire terminated employees through the heir-apparent's new business, which volition have a new federal employee identification number (FEIN).

Post-endmost rights and obligations

A statement of afterwards-sale issues, likely including the heir-apparent'south correct to start the purchase toll by liabilities or inventory valuation variances that go apparent after the settlement date; and the heir-apparent's obligation to fulfill specified requirements such as conveying insurance, maintaining specified working majuscule levels, and allowing the seller to access financial records until the purchase price is paid in full.

Default provisions

A definition of litigation and dispute resolution provisions for dealing with defaults should either the buyer or the seller not fulfill the terms of the agreement.

Concern transfer agreements

These agreements include the bill of sale; assignments of leases, contracts and intellectual belongings; stock transfer (for entity sales); statement of compliance with country bulk sales law requiring supplier notification (for asset sales).

Participation or absence of brokers

A statement of whether or not brokers or finders were involved in the transaction and, if so, how they'll be paid, which is unremarkably stipulated in the broker agreement and usually paid by the seller on endmost day.

Obligation for fees

A argument of how the buyer and seller will pay professional fees involved with the sale closing.

Step 2. Gear up to negotiate the details.

The preceding nautical chart leaves picayune doubt that the buy agreement is detailed and extensive. It'southward besides the basis of negotiations between you and your buyer–not only about cost, only also nearly exactly what'southward included in (and excluded from) the buy and how the agreed-upon payment volition be paid and allocated amid IRS-defined asset categories.

In adjacent calendar week's installment of "Selling Your Pocket-size Business" we'll go over the financing and taxation implications of a sale.

Editor's Notation: This commodity is the nineteenth piece in a series taken from BizBuySell.com's Guide to Selling Your Pocket-sized Business. The guide is a comprehensive manual to help small-scale business owners maximize their success when the solar day to sell arrives. Each Wednesday, Inc.com will publish a new section of the guide outlining BizBuySell.com'due south best practices, from the initial planning stages of a sale all the way through negotiations and post-sale transition.