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Why Do Business Owners Get Tripped Up When Trying to Sell?

Often, only when clients are ready to sell their business, do they discover they didn’t keep thorough records.


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  • | 11:37 a.m. April 28, 2023
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There is a wealth of information available on starting a business, but time and time again, business owners get tripped up when they go to sell their business. Handling M&A transactions each day gives us great insight into common pitfalls.

Selling a business starts the day you register with the Florida Division of Corporations. Often, only when clients are ready to sell their business, do they discover they didn’t keep thorough records. These are the documents to retain from inception:

1. Financial statements: Show the financial health and performance of your business, including income, expenses, assets, and liabilities. Potential buyers will use these to understand the profitability and value of your business.

2. Tax returns: Buyers will review tax returns to ensure that your business has been paying taxes correctly and on time. You should have all years of tax returns available to demonstrate the stability of the business.

3. Licenses and permits: Demonstrate that your business is operating legally and is compliant with all regulations. Buyers will want to review these records to ensure the business is not at risk of penalty or liability.

4. Insurance policies: Evidence that your business is properly insured and protected against potential risks and liabilities.

5. Employment data: Records of employee wages, I-9 forms, benefits, workplace injury records, OSHA compliance, and other employmentrelated information. Buyers will review these to ensure your business is operating in compliance with employment laws and regulations.

6. Contracts: When selling a business, having an accurate account of contracts is vital. From your small printer lease to your most lucrative contracts, buyers will need to see them all. Employment contracts, vendor contracts, customer contracts, lease agreements, nondisclosure agreements, partnership agreements, service agreements, and licensing agreements are all important business records.

Strong organization streamlines the due diligence process, which is when potential buyers review relevant documentation before purchasing your business. This data is used for disclosure schedules, which provide a detailed list of representations and warranties and exceptions to those made by the seller. Inefficiency in due diligence leads to higher attorney’s fees to you as the seller. When the deal closes, a portion of the purchase price is usually held back for a period to cover any inaccuracies in the representations and warranties. Therefore, it is vital to the deal and your bank account to make sure that your representations are correct, which starts with strong records.

Mallory D. Osteen can be reached at (941) 329-6617 or mosteen@ WilliamsParker.com

 

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