Selling a business is a multi-faceted process. Besides preparing your business for the transition, you must also navigate the legal framework to ensure a seamless transaction. For most business owners thinking of this move, the first dilemma is determining whether they need an attorney for selling a business.
If you’re wondering the same, the short answer is yes. Hiring an attorney for selling a business is a smart move, regardless of the type of business.
Let’s explore the selling process, some legal issues you may encounter, the benefits of working with an attorney, and how to find the best professionals to help you.
What Is the Process of Selling A Business, And What Can You Expect from Each Step Involved in The Process?
Once you decide to sell your business, you need a sound plan to cover all the bases. You’ll need to prepare and organize the financial documents and get the company in order for the new owner.
It’s crucial to ensure your business has no current legal issues and there’s no such risk in the near future. It would help if you also determined the business’s monetary value through a business valuation. This process can be challenging without a financial background, so working with accounting professionals is best.
The experts will accurately value your business’s real estate and other property. This additional property may consist of intangible assets such as:
- Customer information
- Projection of future revenue
- Intellectual property
- Brand presence
How Long Does It Typically Take to Sell a Business?
Generally, the average timeline for selling a business is about six to twelve or eleven months. However, various factors affect this timeline by hindering or helping the success and speed of the sale.
The best way to ensure it takes the shortest time possible is to start preparing for the sale about one year prior. This preparation involves increasing the business’s profitability by enhancing aspects such as:
- The customer base
- The business structure
- All financial records
Such improvements ensure the business consistently runs smoothly while easing the transition for the new owner.
What Factors Can Affect That Timeline?
Different factors affect the timeline of selling your business, including:
- Your Particular Industry
One of the most significant factors that affect the sale timeline is your industry. While some sectors experience downward trends, others have promising growth trends.
Niche businesses are also more challenging to sell due to the limited buyer availability.
- The Business Size
Larger businesses or companies have a longer timeline due to the limited number of buyers with enough resources to cover the sale.
- The Asking Price
Your business’s selling price significantly affects the sale timeline. It’s crucial to have a realistic price, so you must determine whether to base the asking price on the business:
- Future potential
- Current valuation
If you opt for the current business valuation, you’ll need a realistic figure based on the current market. For future potential, your asking price will depend on how you present the business and your level of preparation.
- The Type of Buyer
When selling your business, you may encounter different types of buyers. Some buyers need longer periods to get finances in order, while others take longer to do due diligence.
The most common types of buyers include:
Individual Buyers
Such buyers are the most common, and the process is typically faster. Most potential buyers finance the purchase using an SBA 7(a) loan. The approval process for this loan can take between 45 and 90 days.
Strategic Buyers
Strategic buyers have existing businesses in your industry and want to expand their market reach or complement their business. They know your industry, but the due diligence process can extend due to regulatory and corporate approval processes.
Private Equity Groups (PEGs)
These buyers have a more sophisticated process and often have experts who ask numerous questions about the acquisition. This may lengthen the due diligence stage, but the financing stage is fast.
- The Business Structure
The structure of your business depends on the following:
- Your involvement in the daily operations
- Your ability to track your finances
- Streamlining your processes
Buyers prefer businesses they can take over and resume operations easily. Your business will likely sell faster if you can detach from the daily operations, your processes are streamlined, and you have quick access to detailed financial information.
Legal Issues You Might Encounter During the Process
When selling a business, you may experience various legal issues, including:
- Handling debts and distributing profits
- Negotiating and creating sales contracts
- Dividing or managing business property such as production equipment and company cars
- Changing service provision or production of products
- Managing ongoing or open accounts
- Handling documents like sales receipts and tax records
Benefits of Having an Attorney Represent You in a Business Sale Transaction
The transaction process requires extensive knowledge of local and business laws when selling a business.
An experienced attorney for selling a business will help you with the following:
- Reviewing, drafting, and negotiating the relevant agreements involved in the ownership transfer
- Acquiring information about your business’s outstanding liens and ensuring proper disposal
- Complying with instructions from the appropriate government agencies and filing the sales notices
- Providing good drafting and recording of financing documents and reviewing business contracts
- Streamlining documents and liaising with the potential buyer’s financial institution throughout the transaction process
What to Look for When Hiring an Attorney to Represent You in a Business Sale Transaction
When looking for the right attorney for selling a business, some vital aspects to consider include:
Proven Experience
As you search for the right business attorney, be sure to do some research on their experience. You can contact the attorney directly or check their law firm’s online reviews.
Professional Network
A business lawyer with a broad professional network will likely leverage those connections with your best interests at heart.
Personality
An outstanding attorney for selling a business should have excellent communication skills to match. They should also be willing and proactive in educating you about the process and the appropriate legal approach.
How Much Attorney Fees to Expect
Different attorneys have different fee structures, but the size of your business also plays a significant role. The legal fees increase for more prominent firms because the processes are more complex.
Generally, you can expect the lawyer fees for selling a business to fall between $1,500 and $50,000.
Are There Any Other Professionals That You Might Need to Help with the Sale of Your Business?
Once you decide to sell your business, you’ll need other professionals to ensure a smooth transition, including:
- Business Accountant
A CPA (Certified Public Accountant) will assist you with reviewing your documents and records. They’ll guide you on the best approach and structure of the sale concerning taxes.
- Investment Banker or Business Broker
Investment bankers and business brokers are invaluable tools since they have extensive experience selling similar businesses.
- Appraiser
In some cases, an appraiser can help you determine the value of particular business aspects.