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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 following steps:

  1. 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).  
  2. 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.  
  3. 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.  
  4. 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.   
  5. 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:

  1. 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.  
  2. 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.  
  3. 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 going.  
  4. 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.  
  5. 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 was structured.

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.


Bernie Dietz is committed to answering your questions about business transactional law issues in Virginia.

I'll gladly discuss your case with you at your convenience. Contact me today to schedule an appointment.