Selling Your Small Business
A Legal Moment

Selling Your Small Business

   Perhaps the Largest Financial Transaction You will Ever Enter, It is Important to Get it Right the First Time!

   Only about 30% of all small businesses listed actually sell.1 Although there are any number of reasons for this low percentage, the three most common are: (1) failure of the seller to accurately document the financial history of the business; (2) limited marketing and (3) over-pricing the “product.”

   Here are some tips to help maximize the sale of your small business:

   Document the “Product”

    Yes, when you are selling your business all that blood, sweat, tears and life you have invested in your business is suddenly reduced to a cold-blooded commodity (from the buyer’s perspective):  the “on-going concern" product.  This product you now wish to sell may include real property, receivables, payables, an income stream, employees, a portfolio of clients, copyrights, trademarks, vehicles, machinery, debts, executory contracts and other personal business property assets.

    The valuation, listing, marketing and sale of your business may require you to employ an appraiser, commercial broker, accountant and an attorney.  Gather your financial statements and tax returns dating back three to four years and review them with your accountant.  Develop a list of the assets to be sold with the business.  You will need to create multiple packages of this documentation for sharing with potential buyers together with a summary description of your business and its operating/to-do manuals.

Market the “Product”

     The first question almost any potential buyer asks: “Why are you selling?”  It is a question the answer to which you should have determined long before you have to respond to a buyer’s query.  Once you make the decision to sell your business, you need to prepare for the sale as early as possible.  According to SCORE,2 the sale of an on-going business concern usually takes between six months and two years. Thus, at a minimum you should start the process one to two years ahead of your target exit date.  This preparation necessarily includes updating and codifying your financial records; filing and paying all outstanding taxes (federal, state and local business property taxes); taking steps to strengthen your business structure; and organize your customer and vendor bases.

    The next question then becomes whether to try to sell the business yourself or through a business broker.  You may be the best salesperson for the job, particularly if you are selling to a known buyer or existing employee.  However, if you are looking for a greater market or pool of potential buyers, retaining a business broker will significantly assist the sale process.  An added benefit is that employing a broker to concentrate on marketing and field prospective buyers enables you to keep your business running – which, in turn, tends to maximize the price.  If you do employ a business broker, discuss your expectations and marketing concerns with the broker and remain in constant communications throughout the listing period.  Whether you work alone or with a broker, however, try to maximize your advertising to attract more potential buyers.

Price the “Product” to Sell

    Not surprisingly, owners of small businesses are frequently invested emotionally in their enterprise which makes objectively valuing the business a tricky, if not altogether impossible, proposition. For that reason, engage a business appraiser to obtain an independent valuation.  Much like a savvy buyer, the appraiser will review your financials and assets and provide a detailed explanation of the business's worth.  Not only will an independent appraisal enhance the credibility of your asking price, but the appraisal process itself will assist you in understanding what a prospective buyer will review during the due diligence period of any prospective sale.

Make Sure the “Done Deal” is Done Right!

    In all probability, the sale of your business will be the largest financial transaction of your life – and maybe the buyer’s life as well.  Having litigated many commercial disputes, I cannot emphasize too strongly that it literally pays to make sure the sale is done right: in other words, Ben Franklin’s adage “an ounce of prevention is worth a pound of cure” has never been more applicable than in the sale of a business.

    The documents of any business sale are complex and varied. They may include a pre-buyer review Confidentiality and Non-Disclosure Agreement; the Buy/Sell Agreement; Bills of Sale; Assignments; Seller financing documents (Promissory Note, Security Agreements, Deeds of Trusts or Mortgages); and other Post-Sale Employment and Non-competition Agreements.  And if you have minority shareholders or members, you will need an attorney to ensure that a sale of all ownership interests occurs and that the proper internal corporate agreements, resolutions and disclosures occur.

    Many times sellers unwisely rely on the buyer’s attorneys to prepare the final documents. Both sellers and buyers need the assistance of independent counsel to review terms of sale, financing and other potential legal issues, as well as to negotiate the finer – but important – points of the deal.  Attorney’s fees and costs will vary, but you can expect to pay approximately 1½% to 5% of the gross proceeds of sale in legal fees and costs.  In sharp contrast, litigating a poorly documented transaction can easily consume the presumed value of the transaction for either party.

    Selling your business is a time-consuming, emotional venture.  You may be able to obtain free counseling from organizations like SCORE or your local chamber of commerce. Employ a team to assist you:  accountant, broker, appraiser, legal counsel.  We at Marshall, Roth & Gregory, PC wish you the best in your business transactions, and stand ready to assist you in all aspects of your business’ legal needs.

    Note: In the coming months, A Legal Moment will provide tips for buyers of small businesses and web links to seller’s and buyer’s checklists.  If you have further questions on how to sell your small business, do not hesitate to contact the attorneys at Marshall, Roth and Gregory, PC.

1 Siegel, Peter M., “Selling a Small Business – 12 Crucial Steps,”
2 SCORE is a non-profit confidential small business mentoring and advice service association which partners with the U.S. Small Business Administration (


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Clifford C. ("Kip") Marshall is a trial attorney with, and President of, Marshall, Roth & Gregory, PC.  Recognized as a "Best Lawyer" (Government Relations Practice) for the past four years, Kip's practice encompasses all forms of land and title litigation, commercial litigation and catastrophic injury.
Feel free to contact Kip ( to receive more information on this topic or to suggest topics for future editions of "A Legal Moment."  Or visit our firm's website.

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You may not rely on this content as legal advice for any specific situation, but should instead contact an attorney for specific advice.
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