Fall 2007 issue of Horizons

knowledge. commitment. value. CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS CONSULTANTS

however, if not carefully drafted, it may unintentionally become a binding contract. Next, you must go through the buyer’s due diligence, the process of acquiring objective and reliable information. This structured, systematic research effort is used to gather the critical facts and descriptive information (or determine an absence of significant negative factors) that are most relevant to making an informed decision. We suggest you use an electronic data room, which stores the financial and legal information you have pulled together. Electronic data rooms are inexpensive and enable you to compile all of your financial information and legal documents on a secure, password-protected Website for potential buyers to review. You can control who has access to this Website, view who has been on the Website and for how long. Site visits and questions are inevitable, but the electronic data room helps keep them to a minimum. Sales Contract/Purchase Agreement – The potential buyer will sign a sales contract/purchase agreement before the letter of intent expires. This agreement states the buyer’s agreement to buy and the seller’s agreement to sell the specified property under stated terms and conditions. It provides representations and warranties that are fair and reasonable in accordance with the parties' circumstances. Proper document drafting and review of the sales contract minimizes later problems and litigation or arbitration. Typically, a purchase is structured as an asset or stock purchase. An asset purchase allows There are four major steps in selling your business - making the decision to sell and setting the purchase price, finding the appropriate professionals to assist you, preparing your company for sale, and going through the sales process.

the buyer to purchase assets, free and clear of liabilities. The buyer is not actually buying the business entity itself. Thus, an asset purchase is much like buying the company's merchandise without buying the store. A buyer usually prefers an asset purchase agreement because the buyer (i) can acquire assets only, without assuming the seller’s liabilities, (ii) gets a "stepped-up" tax basis on the assets being acquired, (iii) usually has the option but not the obligation to hire the seller's employees, and (iv) has the ability to choose which contracts to assume. In a stock purchase, the selling shareholders swap their stock certificates for the purchase price from the buyer. The buyer is actually taking over the seller’s business. Sellers usually prefer a stock sales contract because of the transfer of liabilities, favorable tax consequences and seamless change of ownership. Federal and State Law Requirements/ Agreements – The attorney will determine which federal and state law requirements/agreements need to be drafted and signed, then the final closing documents are prepared and the deal is closed on a specified date. Any post-closing obligations and rights, including purchase price adjustments, earnouts and indemnification obligations, are worked out after the closing date. Once the deal is closed and money has been exchanged, because of the complexities of different investment options and tax laws, we recommend you obtain the advise of a personal financial consultant.

Questions? Contact Tonja Hilton, CPA Partner-in-Charge, Small Business Services Group 314.290.3334 tonja.hilton@rubinbrown.com

14 u winter 2007 issue