Suggestions on selling your service firm

Nation's Business, Feb, 1998 by Roberta Maynard

The difference between success and failure in selling a professional service business can come down to timely legal advice and practical business considerations.

Stuart R. Kaplan, an attorney with the Pittsburgh law firm of Eckert Seamans Cherin & Mellott, LLC, offers key points for small-business owners to consider when they're planning to sell a firm:

Clarify the deal. Avoid the common mistake of leaving key terms ambiguous or, worse, omitting them. State clearly what is being conveyed, what will be payable, and when.

Among other details, sale documents should state which party will be entitled to post-closing income for pre-closing services. It should be stated clearly who will be responsible for the company's accounts payable, employee benefits, deferred obligations, and contingent liabilities. Any terms used in a purchase-price formula, such as "gross billings" and net income," should be defined as precisely as possible.

Avoid delays. As a rule, it takes four to eight weeks to complete the sale of a service business once a purchaser has come forward with a letter of intent to purchase. Buyer and seller can drag out a transaction unnecessarily for weeks or even months.

A seller can expedite the process by addressing the purchaser's requests for information about the business promptly and specifically.

By the same token, the purchaser should not be allowed to peruse company books and records endlessly. Set a reasonable time limit based on the complexity of the deal.

Check the status of your service agreements. Along with intangible assets such as goodwill, reputation, and trade names, a valuable asset of a service firm is its contracts to provide professional services. However, often these contracts cannot be assigned to third parties, or assignment may require consents and approvals that can be difficult to obtain.

Before you sign any binding agreements, be certain that you have the right to sell or assign your contracts to the purchaser.

Be discreet. To the extent possible, avoid telling customers or clients about the sale until closing. If the purchaser tries to change significant terms or conditions at the last minute, you may feel pressured to accept an unfavorable deal because it would be awkward to back out without losing face.