A Business Sale Chronology (Part2)

New York Business Sale Chronology – A Case Study Continued

In our last post, the sale process had progressed from its starting point in May 2015 through the first 3 of our 4-step process:

1) Discovery: foundation work

2) Valuation: Sale price as determined by specific metrics

3) Financing: an agreed 8-year partnership accumulation plan.

By October, the final step was requested

4) The Letter of Intent (LOI).

The Letter of Intent (LOI) will contain the details of the buy/sell transaction and will be the source document used by the Seller’s attorney to finalize the Purchase Agreement: Payment timing, building lease terms, property purchase options, management control transition, death or disability, non-performance, and the myriad other aspects that need to be determined to protect both parties and improve the probabilities of a mutually beneficial outcome.  We refer to it as the “formal handshake” to complete the transaction.

November 2015 - The first draft of the Letter of Intent (LOI) is submitted to the owners.  New questions and considerations arise. The owners are not sure if they will allow the buyers to accelerate payments – possible higher taxes?  Should the buyers fail to perform, commit unlawful acts or are grossly negligent, employment would be terminated – but in that event, are the consequences to the buyers harsh enough?  Life insurance will be obtained on the buyers – should it be sufficient to cover the lease payments obligation too?

The issue of no down payment surfaces again.  While the owners have a lot of confidence in the buyers’ abilities, they’re concerned that too little is at risk for the buyers to enter into this agreement, except for the employee-buyer’s employment and the opportunity to realize their ownership dreams.  More time elapses.

December – We get extra creative!  We’ll add Saturday service. The employee-buyer will be solely responsible for operating the shop on that day and acquiring ownership experience.  The additional profit generated from Saturdays will benefit the seller until $50,000 has been earned, effectively satisfying their need for a down payment.  Once satisfied, the owners will finance $200,000 (taking the role of a bank), instead of using the original $250,000 partnership accumulation plan.

January 2016 – The new LOI is submitted.  The owners approve. It is shared with the buyers, who discuss it with us.  After further discussion between the sellers and buyers, a few modest modifications are made.  The buyers want to discuss it with their parents and find an attorney.

March – Everyone is ready to complete the definitive Purchase Agreement.  Using the LOI as the template, the seller’s attorney completes a draft purchase agreement in one week.  It goes to the buyers’ attorney.  A month elapses.  The buyers’ attorney suggests changes.

May – The sellers accept some of the changes and the others are rejected.  It goes back to the buyers’ attorney.  Two more months elapse.  “What is taking so long?!”

July – The buyers’ attorney thought he had completed the final review but was mistaken.  The project had been languishing in a file folder.  Once aware, he completed his final review in one week. Now, back to the sellers.

August – Everyone has reviewed the purchase agreement and is satisfied. Arrangements are made to begin Saturday service and a closing date is agreed.

September – Success!  The purchase documents are signed.

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