When selling your business a potential buyer will conduct their own due diligence process assessing risk. Any risk exposure identified would result in a lower offer and perhaps the buyer walking away from the deal. And an area that can be easily overlooked by owners until it’s too late is the legal affairs of their business, including practices, procedures, and documents.
We have found that owners can assume that if they have legal documents in place the documents are adequate indefinitely when in actuality they seldom are. Due to changes in the law, business relationships (i.e, vendors; suppliers), or changing goals of the owner, documents can become ineffective, outdated, or even damaging. This can also be true for practices and procedures that have legal implications and potential liability, with employment practices and procedures right at the top of the list.
We recommend that business owners have a business attorney perform an initial “legal audit” years in advance of when the owner plans to sell their business. The initial legal audit should include a thorough review of basic corporate documents, all operating documents, and ongoing policies and procedures, followed each year with a review. Again, if you’re planning to sell at some point in the future, the potential buyer(s) will certainly do a legal audit as they conduct their due diligence process, and they will not want to acquire your business if it’s loaded with risk.
You will end up minimizing stress as well as legal fees (and significantly increase your chances for a successful transaction) if you prepare well ahead of time in a more measured way, rather than having to do a mad scramble during negotiations. Protect your business value with a legal audit.
