As with the sale of a house, the purchase agreement for the sale of a business includes contingencies. The Seller has the right to review and approve the credit worthiness of the Buyer. The Buyer is protected by three conditions to the sale: the assignment of the existing lease for the premises, or the Buyer’s satisfaction with a new lease for the premises; the approval and receipt of any third-party funding; and the Buyer’s satisfaction with the books and records of the business, referred to as the Buyer’s “due diligence.” The Buyer has no money at risk, and can cancel the sale, until and unless all three of these contingencies are removed in writing.

The time allotted for the Buyer’s due diligence is negotiable, but the Buyer normally has at least two weeks. At the onset of due diligence, the Buyer, usually with the help of his or her financial advisor, will provide the Seller with a written request for financial statements and other documents. Typically, the request will include several years of tax returns and/or Profit & Loss statements, an interim financial statement, and information regarding key customers and employees of the business. If the Buyer wants to interview key employees of the business, it’s prudent for the Seller to ;allow access to these employees late in the Buyer’s due diligence, only after the Buyer has indicated his or her satisfaction with everything else.

What about the landlord? Most Sellers want to avoid telling the landlord the business is for sale until they are certain that the sale will be consummated. But waiting too long to inform the landlord can waste everyone’s time. The best strategy is for the Seller to send a letter to the landlord when the broker begins advertising the business for sale. The Broker can assist with the preparation of this letter. Bear in mind that, if the Buyer will be obtaining an SBA loan, the existing or new lease for the premises must be for a term of at least 10 years. The 10 years can consist of a base term plus one or more option periods. For example, a lease with a base term of five years, followed by a five-year option period, will meet the requirements of the SBA lender.