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. You’ve reviewed the offer and it looks fine, so what’s next? 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. The reason for this is that larger businesses or companies have a lot more areas of concern than the typical smaller business.
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. Sounds easy on the surface, but the seller forgot that two pieces of equipment currently not in use need repair or the walnut desk in the office belongs to Grandfather Smith and is not included. Or, while reviewing the lease, the buyer discovers that the landlord requires that the business must close by 9:00 PM or some other restriction applies and was not disclosed. Deals have fallen apart over similar issues.
Most contingency problems can be resolved prior to the business being placed on the market. The seller should do all of the following:
The list could go on and on, but sellers need to be ready. Buyers don’t like surprises. A business broker professional knows the process like a book and can be invaluable in preparing the business for the marketplace.
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