Dr. Adrienne B. Haynes, Esq.
Contributor

Over the last few months, I’ve helped several SEED Law clients either buy into a business or exit a business. It can be an exciting (and stressful!) time for all parties and there are often a lot of details to manage. My role as legal counsel is to help support risk analysis and mitigation through due diligence and clear documentation. When preparing for these types of business transactions, there are a few key legal considerations that can help to make the process more streamlined. 

Buying a Business

If you are purchasing an existing business or membership interest, it is important to take time to understand the extent of the entity, including strategies, obligations and company culture. Legal considerations for those buying a business include: 

Conducting due diligence regarding business foundations, financials, relationships, and reputation. 

Understanding how technology impacts the business, including any systems integral to the company’s operations

Having well organized payment terms and a clear promissory note for the business purchase

Limiting liability through indemnification for actions prior to purchase 

Requesting ongoing support from the exiting owner to help transfer warranties, accounts, and other business knowledge 

Outlining exclusions for business contracts or assets not included in the sale

Highlighting any nonnegotiables or early termination provisions 

Working through these considerations with your professional team can help support the long term success of the entity after the purchase. 

Selling a Business

When a client decides they want to sell their business, most businesses need to be cleaned up, just a house would need to be spruced up when preparing for owner transitions. We encourage clients to:

Review business governing documents for processes, such as operating agreements or any existing buy/sell agreements 

Update and organize customer and vendor contracts for relational continuity  

Have clear and understandable historical financials for comparison

Work to manage business debt and eliminate loans to/from the owners or managers

Have an updated business strategic plan that outlines the business history, identity and goodwill, as well as strategies for growth in place now. 

Make sure key processes, roles, and responsibilities are documented.

Obtain the support and any prior approvals needed from stakeholders, other business partners, landlords, franchisors, and lenders.

Finally, if you’re in business now and you haven’t developed a strategy around your exit or succession plan, January is a great time to start. There are business strategies and legal solutions that can be implemented now to help build value and support a smooth transition. Consider a few succession planning hypotheticals to help you get started:

What are your goals and what would an ideal exit look like for you? 

What would happen to your business if you decided to close the doors today?

Who would be interested in purchasing your business and why? How can you build a relationship with them today?

What strategies have been effective in building revenue? How can those efforts be scaled or shared?

What would you need to do to create and communicate business value if you wanted to sell in five years?

What happens to the business if you experience 10 years of health decline, starting now?

Implementing these legal considerations can help existing and aspiring owners be better prepared when buying or selling a business. This article is an overview of legal considerations and it does not cover every legal right or obligation, consideration, exception, or restriction. The documentation and decisions involved are complex, and should be well researched and discussed with a team of professionals before being made.

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Thanks for reading!

My name is Dr. Adrienne B. Haynes and I’m an entrepreneur and attorney based here in Kansas City. My law firm, SEED Law, has been partnering with business owners across the Northeast and the city for over 10 years. I loved living in the Northeast and I was fortunate to serve as an Entrepreneur in Residence for the Kauffman Foundation in 2017. Together with a dedicated group of Northeast residents and leaders, we explored a community designed innovation district pilot program. I was able to present this work during a TEDxUMKC Talk on Community Innovation Design in 2020.

Over the next few weeks, I’ll be contributing articles and resources on small business and estate planning legal considerations. If you have questions, please reach out directly at adrienne@seed.legal.