Selling the Company? Get Your House In Order First

1/12/09

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some comfort with your revenue recognition practices and will have an auditor take a look at them. If you are selling product, performing services or (heaven forbid) taking revenue without properly signed and dated contracts, you just may alienate a prospective buyer. It is very likely that your buyer will have established contract practices and processes, and no buyer wants to acquire a company only to have to do battle with the customers who were only too happy with loose, pre-acquisition practices.

In addition to the intellectual property issues that need to be dealt with in employee and contractor agreements, buyers will want to see that you have properly addressed other issues as well. These generally include confidentiality, non-competition (where legally permitted) and non-solicitation of customers or employees. In addition to technology, a buyer is often seeking your talent pool and customer relationships. The buyer might be reluctant to acquire a business that has not protected these key relationships. Since nothing would prevent the employee/contractor base from going to a competitor and poaching customers or employees after the closing, the buyer would run the risk that its investment could be significantly devalued.

Companies need to focus on their core business and conserve their capital in trying financial times. But “going it alone” may no longer be a viable option for many companies, and seeking a buyer may be the best alternative. Buyers could be turned off by companies that don’t have their affairs well organized, since it will make it difficult to conduct due diligence and get a solid understanding of the business. Companies would therefore be wise to invest in getting their house in order so that they are prepared to facilitate a transaction if opportunity knocks.

Ari Buchler is senior vice president and general counsel at Phase Forward in Waltham, MA. Follow @

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  • http://www.bayhammocks.com/default.aspx Anne

    Thank you for sharing this very wise advice. It is useful information for any small business person planning to sell a business at some point.