Buyers Of A Business – Although this article series is advice for the sale of a business consider the inverse as the questions you should be asking the Seller.
An LOI (Letter of Intent) is the getting serious point for the sale of a business. As the owner you can expect kissing many frogs before an LOI is offered up. There are required points in an LOI; and you can get a determination of the sophistication of your possible buyer by what is included in that Letter of Intent. Follow the checklist below:
1) Identification of the Buyer and Seller
2) Description of the Corporation or Assets Being Bought/Sold
3) Price, Terms & Commitment to a Least a $10,000 Earnest Money
4) Due Diligence Terms and Completion Date
5) Conduct of the Business Prior to Closing
6) Contingencies to the Closing
7) Purchase Offer (PO) or Definite Agreement (DA) completion date and PO or DA deadline acceptance date
8) Confidentiality of the LOI
9) Not Legally Binding except for Paragraphs 8, 10 and 14
10) Payment Responsibility for the Legal and/or Financial Advisors during the Term of the LOI
11) Closing date to read as follows:
The estimated date for Closing is ____, 20___. Buyer and Seller shall make their best efforts to complete Closing on or before that date.
12) Broker provision (if applicable) If you engaged a Business Broker to represent the sale of your business be sure your LOI states the amount of commission and who will pay this commission. The rule is typically that the Seller pays; but this is negotiable of you so choose.
13) LOI Expiration Date to read as follows:
This LOI will expire 30 days from the date of signing below or upon the signing of a Purchase Offer (PO) or Definite Agreement (DA) whichever comes first.
14) Period of Exclusivity to read as follows:
Upon Seller’s acceptance of this LETTER OF INTENT, Seller does hereby direct Broker not to advise or present Seller with any subsequent offer or Letter of Intent received by Broker until after expiration or other nullification of this LETTER OF INTENT.
15) Agency Relationship (if applicable) Seller and Buyer understand and agree that Broker may act as a dual agent representing both Seller and Buyer. (NOTE: If you have listed your online business for sale with a Business Broker you should ask if your Broker is also representing the buyer. A “dual agency” is more the case than the exception.)
16) Acknowledgment – the Buyer should sign and leave a place for the Seller to sign and accept.
If these clauses (except for 12 and 15) are not included you may not have a valid Letter Of Intent.
In many cases a buyer will fore-go an LOI and present you with a Purchase Agreement. This typically occurs when your buyer has had an already extensive period of due diligence. Items to review in a Purchase Agreement.
Assets – This item is one you want to begin now; rather than waiting for a Purchase Agreement. Consider that the more assets items you have in your Asset List the greater the perceived value of your online business. You can use your asset list as a promotional tool when it comes to to list the sale of your business. This list will include a few required categories which are used for tax purposes; and must be agreed upon by buyer and seller.
Website Content………………………………………………………………………………….. 65% (see below)
Covenant Not to Compete……………………………………………………… 25%
Goodwill………………………………………………………………………………… 6%
Subscriber List………………………………………………………………………. 3%
Domain Name………………………………………………………………………… 1%
Consulting Agreement……………………………………………………………
You can impress your buyer, and gain valuable increases in the sale of your business, when you suggest to your buyer to add an asset for website content. (I learned this asset allocation from a very smart CPA, whom I can recommend to any who ask privately.) Most buyers, and buyer’s accountants, will probably be ignorant of this tax avoidance scheme. Thereby making you the hero. By allocating content as an asset it is possible to expense this item in the first year of ownership by the buyer.
Covenant Not To Compete – Most non compete agreements are defined by a geographic area; because they were designed for brick-and-mortar purchase agreements. For a non compete to be valid the geographic area must not be overzealous. There is case law that has overturned non complete agreements because they were overbroad.
However, how do you structure a non compete for an Internet business where the “geography” is worldwide? What I have suggested (remember the CAVEAT: I am NOT an attorney and not providing legal advice.) to prior clients is to define the area of non complete to “similar English language websites”.
This is Part Ten of a multi-part article that will provide the knowledge you need to maximize the sale of a business.
Three years of data on SOLD Internet Business Opportunities. Use this information to strengthen your position when making creating an asking price. Read the details on dozens of Sold Internet Business Opportunities.
Read Part One of This Multi Article Series – Analytics
Read Part Two of This Multi Article Series – Recast
Read Part Three of This Multi Article Series – IP
Part Four of Sale Of A Business – - The List
Part Five of Sale Of A Business – Financing
Part Six of Sale Of A Business – Gotchas!
Part Seven of Sale Of A Business – 3 Cs
Part Eight of Sale Of A Business – Growth
Part Nine of Sale Of A Business – Reputation
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