Ready to Sell

Philip L. Chapman, Esq. Ready to Sell

WILL YOUR BUSINESS BE READY TO SELL WHEN YOU ARE READY?

By Philip L. Chapman, Esq.
of
Lum, Drasco & Positan, LLC, Roseland, NJ

Do the right things now to put your business in a more saleable state when you will want to sell it. If you don’t a sale may be for less money or on less advantageous terms, may involve a great deal of delay and extra expense or may not even be doable.

The Company’s Accountant

Make sure your accountant is both business and tax knowledgeable and is really interested in the account. As least twice a year confer with your accountant about the Company’s activities and results of operations.

Form of Financial Statement

Upgrade the Company’s financials from compilation at least to review statement, provided that you have received an estimate from the accountant of the annual expense and the expense is worth it. Keep in mind that public companies much prefer to acquire businesses which have audited financial statements; and therefore, you should have a cost/benefit discussion with your accountant as to upgrading to audited statements.

Need for General Counsel

No matter what the size of your business, the Company should have an in-house or outside general counsel with whom you confer during the year, not just on a crisis basis, who confers with other professionals who serve your business and assists you in engaging the services of other lawyers and non-lawyers in specialty fields.

The Company’s Insurance and Insurance Agent

Review, annually, face to face at your place of business, with a qualified insurance professional: (a) the company’s operations; (b) amount and scope of coverage of its public liability, casualty, product liability, workers’ compensation, and employment practices insurance; (c) the financial condition of the insurers; and (d) whether the premiums are competitive.

Human Resources and Employment Practices

Lawsuits and EEOC complaints are occurring more and more as to sexual harassment, discrimination in hiring or terminating, wrongful termination of at-will employees without following the procedures in the Company’s employment manual, non-re-employment after maternity leave and change of duties for partially disabled workers.

Failure to handle HR issues properly can turn a small fire into a major conflagration, exposing the Company to painfully high legal fees and to damage awards.

In a proposed sale of your stock or merger, too much uncertainty about contingent liabilities in the employment practices area can queer a potential deal. Even in an asset sale, where the buyer is acquiring a work force to continue to operate in-place, too many poor past employment practices which will require the immediate attention of the buyer can discourage the buyer or complicate the deal.

If you can’t afford a qualified in-house human resources professional, engage the services of such a consultant to review your employment manual, to review your employment practices and to be on the other end of a “hot line” when problems arise and have a specialist lawyer on call.

Confidentiality and Non-Compete Agreements

Long before a potential purchase comes on the scene, a salesperson who controls a very significant amount of your Company’s business might just pick up and leave to go to a competitor or to establish his or her own competing business. And, even if the salesperson is still there at the time of negotiations for the sale of the business, the absence of a non-compete agreement can result in the killing of the deal or the transfer of some of the monies that would have been paid to you to the salesperson.

Provisions in the Company’s Lease relating to Assignment

If your Company leases property from a non-related third party, make sure the lease contains provisions permitting, in case of a sale or merger of the business, the free right of assignment - or at least some reasonable conditions concerning the financial strength of a proposed assignee, which would restrict the right of the landlord to refuse to consent to the assignment.

Environmental Investigation of the Company’s Facility

When the facility used by the Company is an environmental unknown by the time of the Asset Purchase or Stock Sale Agreement, the negotiations regarding environmental contingencies and responsibility for clean-up costs, indemnifications and escrows are sometimes so difficult that deals die because of them. Moreover, quite often the buyer does not have time to delay the closing until all the environmental questions are answered and problems are premeditated.

Accordingly whether the company owns or leases its facility, and whether or not the sale would trigger an investigation of the property by a State environmental protection agency, long before a sale is on the horizon, an environmental assessment should be made to detect the presence of hazardous materials, including asbestos and PCBs and the presence of underground fuel storage tanks and possible leakage.