I know the term "paperless office" has been tossed around quite a bit in the past decade or so but having been involved in hundreds of transactions, it still blows my mind how much paperwork is generated in the process. Attorneys are usually the worst contributors to this situation.
Whenever I am at a closing and the buyer's and seller's representatives bring out their stacks of documents I remind them all that The American Constitution, a document that has been in place for over 200 years with only 27 modifications at this writing, and has withstood countless challenges and remains as the foundation for the most advanced country in the world is just four pages long. OK, enough pontificating.
Before we get into the documents you will need, please be certain that whatever documents you sign must be reviewed by your attorney first, regardless of any language to the contrary within the document that provides for a legal review after execution.
Here are some of the documents you may need at various stages during this process:
- A Non-Disclosure/Confidentiality Agreement
- Personal Financial Statement for buyers to complete
- Executive Summary of Overview of the Business
- A detailed Profile describing the business
- Two or three years of Internal Profit & Loss Statements
- Up to date Balance Sheet
- Two or three years of corporate tax returns
- Any additional documentation to substantiate the financial representations
- Copy of current lease
- Insurance policies
- Professional certificates
- Any supplier or client contracts
- Employment Agreements
- Offer to Purchase Agreement
- Note for any seller financing
Additionally, the buyer may request other documentation during their financial review/ due diligence after a formal contract or Letter of Intent is in place. Let them provide you with a list.
A Final Word – The General Rule About Disclosing Information
During the various stages of the business sale process the buyer may request documentation from you that may be highly confidential which you are not prepared to disclose at that point. Be upfront with them and explain why. For example, there is no need for them to have access to customer lists or highly confidential supplier contracts until an accepted offer is in place and they have satisfied their initial financial review. (due diligence). Likewise, let them make a compelling argument why they may need certain information that you are not comfortable providing yet. Try to avoid derailing a deal because of this predicament. At the same time you must understand that a buyer will need a reasonable amount of information be able to put an offer on the table and so you may need to put yourself in their situation to understand their request.
If you learn early on that a buyer is not financially qualified based upon their assets to complete a transaction and they cannot prove otherwise, there's no need for you to provide them with anything really. That being said, you need to weigh holding back anything against what they will need to make a proper decision at each stage to keep the dialogue and deal moving forward. Don't be rigid to the point of blowing a deal. I have been in situations where intermediaries, regardless of a buyer's financials, will not provide P & Ls until a fully executed agreement is in place. Personally, I think this is completely ridiculous unless there are highly extenuating circumstances (i.e. the buyer owns a competitive business). Remember, the easier you make it to buy, the more certain your business will sell.