Contract and Fiscal Responsibilities

s1m1_woman_with_iphone

William Iven. (n.d.). Retrieved from https://unsplash.imgix.net/photo-1423666639041-f56000c27a9a?q=75&fm=jpg&s=d36ce846cbb4e045f6f2d071b8df6590. Creative Commons Zero

A buyer will be most interested in any existing contracts, their cost, and expiration date. When a building is leased, the buyer will want to know if a change of ownership triggers a termination clause with the lease. This will force the new buyer to renegotiate the terms of the lease or relocate.

Most often, the business will have taken on financing and have pledged assets as collateral. You will need to provide:

  • A list of loans showing the current balance, repayment terms and interest.
  • A list of the assets.
  • The net book value.
  • A report of capital reinvestment over the past five years to confirm the level of reinvestment.
  • A copy of the Capital Plan for the next year.
  • A list of the inventories and most recent count data.
  • Inventory turnover calculations to indicate the age of the inventory.
  • A list of customers, credit terms and commitments sorted by size of annual purchases.
  • An aged accounts receivable and bad debt experience.
  • A general assessment of the customers to lend support to the quality of the customers and the potential retention.
  • The financial statements for the past five years.
  • The Income tax returns.
  • Any notice of assessment and the name of the professional accountant that prepared the taxes in order to provide assurance that the statements fairly reflect the business situation.
  • The insurance coverage, premium and claim history.
  • Property taxes and assessments in order to lend credibility to prices for land and building.

When your company has Intellectual Property (IP) that is included in the sale, the Non-Disclosure Agreement must include what you are prepared to disclose without risking the loss of the property. This is tricky as you need to describe it and demonstrate it without delving into how it is made. Software programs are often the subject of IP sales, but releasing a copy of the program code should not be requested by the buyer.

In the event the business has had a professional evaluation, providing a copy would be appropriate.

At this point you might be getting nervous about the amount and detail of your company that is being disclosed. The non-disclosure document is key to being able to relax somewhat. Obtain legal advice on what action you can do if a potential purchaser violates the agreement.

While your initial reaction may be to withhold these documents, it could raise a major concern with your buyer.

Activity: Contract and Fiscal Responsibilities

The following three videos may provide an insight into documents generally expected. Many videos that were reviewed were promotions by business brokers; however, the information is valuable.

Next, you will look at the employee contribution to the business.

css.php