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|Buying and Selling a Business
Buying and selling a Virginia business are two sides of one
transaction. However, depending on which side of the transaction
you are on, the things that matter to you will be very different.
From a thousand foot view, when you are the potential buyer of a
business you are most concerned with (1) understanding what you are
buying and (2) minimizing your risk of post-sale surprises. On the
other hand, when you are the seller of a Virginia business, you are most
concerned with (1) receiving your sales price and (2) minimizing future
problems from any source. Because of these different concerns,
I'll address buyers and sellers separately.
Buying a Virginia Business
The process of purchasing a Virginia business generally follows the
- Determine what you are buying. There are two aspects
to this: First, are you purchasing the seller's LLC or corporation or
are you purchasing just it's assets? The difference is significant.
From a buyer's standpoint, you almost always would prefer to purchase
the assets of the LLC or corporation (as opposed to the membership
units of the LLC or the stock of the corporation) for the simple
reason that you will leave most, if not all, of the potential past
liabilities behind. Second, what is being transferred to you in
terms of assets? This includes not only physical assets
(inventory, fixtures, equipment, vehicles, etc.) but also intangible
assets (intellectual property rights, receivables, etc.). You
will want to have a very detailed written listing of everything that
is included, as well as those things that are not (think liabilities).
- Determine what you are willing to pay and how you are willing
to pay for it. The seller should provide you with enough
general background information about the business (financial
information, etc.) that you can start to determine a fair purchase
price. Don't be surprised if you are asked to sign a
non-disclosure agreement, although before you sign one it is a good
idea to have your attorney review it to make sure there are no
potential problems with it. Generally, the next step in the
process is to make an offer (non-binding) which will include the
potential payment terms. Do you want the seller to provide some
financing for the transaction (take back a loan)? Do you want to have
a performance-based earn out provision? These sorts of financing
structures can help reduce the buyer's risk.
- Do your due diligence. This is a crucial step that
often gets overlooked, or is given too little attention. Now
that you have a non-binding letter of intent signed that lays out the
major terms of the deal, it is time to dig in and review all aspects
of the business. The reason for this is to avoid potential
surprises in the future. Don't take the seller's word for it. Ask to see company bank statements, tax
returns and other documents to support the information that was given
to you in step 2 above. Is the customer base stable? Is there a
problem with accounts receivable? Are all of the employees getting
ready to quit? Dig deep to understand the business, how it runs,
and any potential risks to your future success. The help of a
knowledgeable CPA can really be a good idea at this point.
- Draft your purchase agreements. The writings you sign
will control your purchase. They must be done correctly to help
avoid future problems and misunderstandings. Generally, anything
that is not included in the agreements is gone once the contracts are
signed. An experienced Virginia business lawyer can help you
avoid major problems with this step. If you're purchasing just
the assets of the business, now is when you will want to start your Virginia LLC or Virginia corporation so that the
purchaser is your entity and not you individually.
- Close the deal. Assuming everything still looks good
to you and the contracts are prepared to your satisfaction, a closing
is conducted where all of the final paperwork is signed and money
changes hands. At that point, you are now the owner of your new
business. Now the real hard work begins!
Selling a Virginia business
The process of selling a Virginia business is different than buying.
Your goal is to smoothly transfer your business to the buyer with as
little risk to you as possible and to avoid wasting time with tire
kickers. The process of selling your Virginia business generally
follows these steps:
- Understand how you want to sell your business. Are
you going to be selling the stock of your corporation or membership
units of your LLC? If so, make sure all of your corporate or LLC
paperwork (Articles, by-laws/Operating Agreement, minutes, etc.) are
in order. Or, are you going to be selling the assets of the
business (understand that past liabilities will stay with your LLC or
corporation). Selling your LLC or corporation is more
advantageous to you (because the liabilities transfer to the new
owner) but is less attractive to a buyer.
- Get your affairs in order. Now is the time to make
sure your company information is accessible and in order. Create
financial statements (income statement, balance sheet, etc.) so that
they are readily available for review by a qualified buyer. Put
together a detailed list of assets that you are willing to transfer
(and those that you are not). The more you do in advance, the
quicker you can move when a qualified and interested buyer arrives.
- Qualify potential buyers. One of the hardest parts of
the process for a seller is knowing which potential buyers to spend
time and resources on and which to avoid. Not everyone who
expresses interest in purchasing your business is a true potential
buyer. Just as they are evaluating you and your business, before
you spend too much time sharing information with a potential buyer,
you must evaluate them as well. Do they have the financial
resources (or access to financial resources) to purchase your
business? Are they serious about buying a business? Do they have any
business experience? Remember that you are probably still
running your business during this process and you want to make sure
all of your attention is not drawn away from keeping your business
- Negotiate the purchase terms and legal agreements.
The writings you sign will control your sale and post-sale
responsibilities. They must be done correctly to help avoid
future problems and misunderstandings with your buyer. If you
are not getting all cash at the closing, you will need to be sure to
have proper financing paperwork in place to protect you from non-payment.
An experienced Virginia business lawyer can help you avoid major
problems with this step.
- Closing and post-transfer clean up. When all of the
documentation is in proper form, a closing will be scheduled to sign
the paperwork, turn over the assets to the buyer, and collect your
payment. After the closing, you will want to consider whether it
is time to shut down your LLC or corporation (if you sold just the
assets), report your final tax returns, and the like so you can move
on. The steps involved will vary greatly based on how your sale
Buying and selling a Virginia business is a lot of work and is
definitely not something you should handle alone. I handle the
sale and purchase of businesses on a regular basis and would be happy to
talk with you to discuss how I can help with the process. Just contact me.
Law Office of
Bernard C. Dietz, PC
Send us an email to or call us today to see how we can help you
"Bernie Dietz has been my business advisor since 1999. I don't
negotiate or even consider a deal without his advice and guidance. He
writes all my contracts. Bernie keeps me away from bad deals, and he
helps shape every deal so it's profitable... [more]
Nick Corcodilos AskTheHeadhunter.com"
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