Selling a business can be a very complex process. It can take months for a business owner to find the right buyer and even longer for them to finalize the sale. There are many different documents required when preparing to sell a business.
Some people compare the process to listing real estate for sale. After all, a large amount of money changes hands, and there is an expectation that the seller should be as transparent as possible. Proper disclosures to prospective buyers are a key component of any proposed business sale transaction.
What do business owners and executives need to disclose before selling an organization to a buyer?
Business disclosures are complex
People selling real estate benefit from a simple template document that they can complete in a matter of minutes. Business disclosures are often far more complex. Owners and executives preparing to sell an organization have to provide accurate information about the company’s finances and prospects.
They have to take care not to overstate the company’s revenue or market share. Additionally, organizations typically need to make thorough disclosures about the current status of various physical resources. From machinery and supplies to real estate, there may be numerous valuable assets in a business’s portfolio.
It is typically necessary to acknowledge the current condition of each of those assets. Businesses have to acknowledge any financing that may affect ownership rights and any damage or depreciation caused by age or regular use. Businesses generally also have to disclose financial liabilities, including unsecured debts.
It may also be important to provide thorough information about the current employee roster. The duration of contracts can be an important consideration. So can any obligations to provide deferred compensation to top performers.
Seemingly minor omissions could result in the transaction falling apart. In more serious cases, buyers can potentially hold previous owners or executives accountable for misrepresenting the company’s finances or assets. Preparing for a business sales transaction is a lengthy undertaking that most owners and executives struggle to manage on their own.
Professionals intending to sell a business often need support from the earliest stages of the sales process. Those who understand what disclosures are necessary may limit their risk of making mistakes that undermine the success or profitability of the sale.