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How to Buy or Sell a Business, in 5 Phases

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By Joshua Logan, Esq.

As an attorney who has conducted several dozen business purchase and sale transactions, it has been my experience that the likelihood of a successful completion of the transaction increases considerably after the conclusion of each step of the transaction. Each of those phases of the transaction are described here so you can understand what to expect during the business acquisition or divestiture process, and understand the status of where your transaction stands. Here are the five major phases of a business purchase and sale transaction:

1) Letter of Intent, Confidentiality & CNDAs

After the identification of a target business to purchase or an interested

potential buyer, the Letter of Intent, or “LOI,” sets out the most broad, intended terms of the transaction. Usually these terms of the LOI are:

  • Determine Asset Sale vs. Interest Sale

  • What to do with the Seller's Contracts

  • Determine the Sales Price & any Pricing Formula

  • Exclusions from the Sale

  • What to do with Employees

  • Deadlines

  • Termination

  • Deposits

  • Confidentiality and Non-Disclosure Agreements ("CNDAs")


For a description of each of the above-components to an LOI, read the post, What is an M&A Letter of Intent? here

If the initial terms are agreeable to the parties, the LOI is signed by authorized representatives.

2) Due Diligence Phase

After the agreement of the intended major terms of the transaction, through an LOI/CNDA, and before entering a Purchase & Sale Agreement, the Seller will work with the Buyer in providing and facilitating with information gathering. The information gathered by the buyer is essential in order to make a determination whether or not to go forward with the next phase of the transaction.

The Due Diligence inspections include review of the selling company’s financial documents, such as the balance sheet, revenue reports, loan documents, leases, copies of ongoing performance contracts, employment agreements, and verification of authority to enter into a binding contract to complete the intended transaction. This stage is a great time to get a business valuation from an experienced business broker or accountant.

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