Due Diligence Steps When Selling a Business

One of the duties of a business broker Orange County is to guide you through the due diligence process. Due diligence is an important step in the sale of a business which helps the buyer determine if your business is a good investment. Focus here is to gather as much information as possible in order to make the most informed decision. But what are the steps involved in due diligence?

Execution of the LOI

The first thing that has to be done is the submission of the Letter of Intent by the buyer. This is a document that discusses the particulars of the deal and also involves a down payment of at least 10% of the total selling price. The down payment is fully refundable and the LOI is not binding. The buyer must sign a non-disclosure agreement prior to being shown into the secrets of the business. The LOI will also include the duration of due diligence. This can be between a week and 4 weeks. Your business brokers Orange County will help review and negotiate the terms in the LOI.

Conversation with the business owner

Once the down payment has been put in escrow and the LOI has been executed, the first step in due diligence is a conversation with the seller. This is done to get an overview of the business. The buyer will also want to have a conversation with the landlord to discuss the transfer of leases. Often times, landlords are willing to draw up new leases for the new business owner. If using SBA loans, the SBA may require a ten-year lease option agreement.

Thorough vetting of financials

Once matters on the lease agreements have been settled, the buyer will now do a deep dive into your business. Focus is to go through your financials. The buyer gets access to the profit and loss statements, income statements, bank statements, balance sheets, tax returns, credit card transactions and all other financial information that pertain to your business. The objective here is to see if the financials represented in your marketing materials were accurate.

Closing attorney

The last step involves the closing attorney and a business broker Orange County. The two collaborates to develop a closing document for the two parties to review. Closing documents will include the bill of sale, Asset Purchase Agreement, Promissory Note and Uniform Commercial Code filing. This will also include the seller and buyer closing settlement statements.

Selling a business is not as straightforward. This is why you must always involve experienced business brokers Orange County to guide you through the process. Find someone that has experience selling businesses that are similar to yours.

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