No matter how many jokes you’ve heard about crooked lawyers, good attorneys can save you hundreds of thousands, or even millions of dollars when it comes time for you to sell your business. Lawyers are not evil; they are a vital part of your professional team. They are some of the sharpest and most talented people I’ve ever met, and you will want to hire a sharp attorney for the business sales contract as you prepare to sell.
Have you ever spent the day running a chainsaw? We are all familiar with this motorized tool that spins a sharp chain at a high rate of speed, and we’ve all probably run from a clown wielding a chainsaw at a haunted house. And while it’s designed to take down the mightiest of trees, it can also take off legs, fingers, heads, hands, and every other part of your body that encounters the chain.
Some of the nastiest accidents I’ve seen have involved chainsaws. I experienced a nasty injury in a chainsaw accident when I was running my landscaping company at about 19-years-old. I was up in a pine tree, cutting branches. A harness and a pair of spikes on my shoes prevented me from falling as I cut off the top of the tree. Following standard procedure, I let go of the chainsaw when I finished the job. But lo and behold, when I dropped it, the chain didn’t stop the way it was designed to, and it caught my calf. I still have many scars on my leg from that particular accident.
In spite of its inherent danger, a chainsaw is a very useful tool. When a windstorm came through my area last year, I was able to use a chainsaw to remove downed trees from the roads that were preventing us from leaving our farm. I also use chainsaws to cut firewood and to clear land. Very useful indeed.
Because chainsaws are so dangerous, though, I follow a few rules when I’m using a chainsaw. These rules keep me and others around me safe.
“there’s one person on your professional advisory team who will probably make you feel like you’re operating a chainsaw – the attorney.” – Justin GoodbreadClick to tweet
And, just like the chainsaw, you must apply the same rules to the lawyer:
But why do you even need an attorney when you sell your company? Simple. You’ll be dealing with a ton of documents and contracts that require a lawyer’s knowledge and keen eye.
Contracts are legally binding documents that detail all agreements between two or more entities. Since you’ll need a strong sales contract to record every buyer-seller agreement, term, and condition, you better have a sharp lawyer to protect your assets and your business and personal goals.
As you enter into the sales process, there’s a natural ebb and flow that takes place between the buyer’s and seller’s parties. Typically, the buyer, or at times the seller, will start with a term sheet. Basically, a term sheet is a wish list that details the individual’s desire to buy the company and the terms that will ensure he does so. Upon receipt of the term sheet, the recipient (usually the seller) will get rid of parts he doesn’t agree with and add some of his own desires for the sale. That bantering, or back-and-forth volley, between parties, will continue until an agreement is reached or until it dissolves.
The Sales Contract
“Because the sales contract outlines many terms and conditions in complicated terms and legal jargon, you’ll need a super sharp attorney to work through the business sale contract with precision and stamina.” – Justin GoodbreadClick to tweet
For the purpose of this series, though, let’s assume an agreement is reached. At agreement, your lawyer and her legal team will draw up written terms of a sales agreement that accurately captures both the buyer’s and seller’s interests and desires. Because the sales contract outlines many terms and conditions in complicated language and legal jargon, you’ll need a super sharp attorney to work through the business sales contract with precision and stamina. While you may be smart, you don’t have the legal knowledge required to keep the volley going and to ensure the objective protection of all parties.
In my 20+ years in business, I’ve seen and signed many contracts. I’ve seen good contracts, decent contracts, and contracts I wouldn’t sign if I had to.
So what’s in a good business sales contract? Well, every state and jurisdiction will require different state or area-specific details. Your attorney will be able to interpret the laws and draw up a contract. I can’t offer you legal advice. That’s why I tell you to hire a good lawyer; I’m not one.
However, I have seen six basic reoccurring elements in the best contracts I’ve seen during my career.
Those are just the basic elements in sound contracts. Obviously, each business will require industry-specific and business-specific provisions to be added to the contract.
Additional provisions include the following elements.
There are many more provisions that could go into your business sales contract. That’s why you need a razor-sharp attorney who understands all of these complicated terms and legal requirements.
Ultimately, though, you bear responsibility for the business sales contract. Even if you have the best attorney in your state, you still have to do your due diligence to make sure the contract meets your expectations. Here are six steps you can take to protect yourself and double-check your attorney’s work.
If you’re putting in all of this work to finalize a good sales contract, be vigilant. Ask questions. Sometimes, lawyers use tricks to sidetrack or derail business owners or buyers. Specifically, watch out for attorney tricks that could appear in your contract:
Are you tired yet? Do you feel like you’ve been running a chainsaw after reading this post?
Friends, this article only outlines the basics of legal work. That’s why I say that lawyers are like the work of a chainsaw. As you’re getting ready to sell your business, though, you need to employ a razor-sharp attorney to help with the business sales contract process to protect you from legal ramifications. You’ll need a lawyer who can get the job done efficiently and correctly. You’ll be exhausted by the end of the sale, so you need an attorney who can go the distance and help you get there, too.
In the next article, we will address some of the “got ya’s”… those costly mistakes people make during the process of selling their business.
Yes, the business sales process is very complicated. Lawyers, documents, and legal terms can be frustrating. But money doesn’t have to be. Let’s continue to work together make our lives, at least, financially simple.