Buying or selling a business is a big step, and it’s not something you want to rush into. Whether you’re the owner looking to sell what you’ve built or a buyer ready to take on a new venture, this type of transaction is more than just a handshake and a price tag. It involves legal obligations, financial risks, and long-term planning.
The good news? With the right preparation and guidance, a business sale or purchase can be a smart, strategic move. Let’s take a closer look at the key factors both buyers and sellers should keep in mind to make sure the deal is sound and the transition is successful.
Due Diligence
For buyers, due diligence is your chance to look under the hood. You’re not just buying a name and a customer list—you’re potentially taking on debts, contracts, employees, and liabilities. Due diligence allows you to verify the business’s value, understand its operations, and flag any issues before they become your problem.
Key areas to review:
- Financial records (tax returns, balance sheets, cash flow statements)
- Customer contracts and vendor agreements
- Employment records and policies
- Pending or potential legal issues
- Business licenses, zoning, or regulatory compliance
- Physical and digital assets (equipment, property, intellectual property)
For sellers, due diligence goes both ways. You’ll be expected to provide full transparency about your business, and anything that looks off like inconsistent books or unresolved legal matters can scare off buyers or drive down your asking price. Having your records clean and organized can speed up the process and build trust.
Business Valuation
For both parties, getting the price right is one of the trickiest parts. Sellers want to maximize value, while buyers want to ensure they’re not overpaying. That’s where a formal business valuation comes in.
There are several valuation methods, but most rely on factors like:
- Revenue and profitability
- Market trends and industry comparables
- Customer concentration
- Growth potential
- Tangible and intangible assets
Working with a financial advisor or business broker can help determine a fair valuation. For buyers, it’s worth noting that a business that looks healthy on paper may come with risks, like a heavy reliance on one customer or outdated systems. A proper valuation considers more than just the bottom line.
Deal structure
One of the first legal decisions in a business sale is how the deal will be structured—usually as either an asset sale or a stock (or membership interest) sale.
- In an asset sale, the buyer purchases specific assets and sometimes assumes certain liabilities. The seller retains ownership of the legal entity.
- In a stock sale, the buyer purchases the ownership interest in the entire company, taking on all assets and liabilities.
Buyers often prefer asset sales because they can choose what to take and limit their exposure to unknown liabilities. Sellers may prefer stock sales for the cleaner exit and potential tax benefits. This is a conversation to have with your attorney and accountant early in the process.
Purchase Agreement
Once terms are agreed upon, they’re formalized in a purchase agreement—a legal contract that outlines everything from price and payment terms to contingencies and responsibilities.
Important items to include:
- A breakdown of the purchase price and what’s included
- How and when the payment will be made
- Representations and warranties from both parties
- What happens to existing employees
- What happens if either party backs out
- Non-compete and confidentiality clauses
Having a clear, comprehensive agreement is essential to protecting both sides and preventing misunderstandings later on. Don’t rely on templates or handshake deals—a custom, lawyer-drafted agreement is a must.
Tax Implications
Every business transaction has tax consequences, and they can be significant. The way the deal is structured affects how both the buyer and the seller are taxed. For sellers, gains from the sale may be subject to capital gains tax, depending on how long the business has been owned and how it’s structured (e.g., sole proprietorship, partnership, S-Corp, C-Corp). Buyers may benefit from depreciation and amortization deductions if purchasing assets. How the purchase price is allocated among tangible assets, goodwill, and other intangibles will also impact future tax filings.
It’s critical to talk with a tax advisor during the negotiation process—not after the deal is done.
Employees and HR Considerations
If the business has employees, their future needs to be addressed during the sale.
Questions to ask:
- Will the buyer retain all employees?
- Will employment contracts or benefits need to be renegotiated?
- Are there unpaid wages, bonuses, or PTO to settle?
- Will there be changes to payroll systems or HR policies?
For sellers, being upfront with employees about the transition (when appropriate) helps ease uncertainty and boost morale. For buyers, it’s essential to understand the existing company culture and whether it aligns with your plans post-sale.
Licenses, Permits, and Regulatory Compliance
Every business has some level of regulatory requirements, whether it’s a simple business license or something industry-specific like a liquor license or health inspection certification.
Buyers should confirm that:
- All required licenses are valid and transferable
- Zoning and occupancy rules are being followed
- There are no outstanding fines, violations, or legal issues
Overlooking these can cause major delays—or even halt operations after the sale.
Transition Planning
What happens after the deal closes? A solid transition plan can make all the difference in preserving the value of the business.
This might include:
- The seller staying on for a period of time to help with the handover
- Training on systems and processes
- Introducing the buyer to key customers, vendors, and employees
- Marketing and communication about the ownership change
Both sides benefit when the transition is thoughtful and well-executed. Buyers get continuity, and sellers preserve their legacy.
Legal Representation
There are too many legal details in a business sale to try and manage it on your own. An experienced business transactions attorney can:
- Help you choose the right structure for the deal
- Draft or review the purchase agreement
- Advise on risk, liability, and compliance
- Represent you during negotiations
Having the right legal team helps protect your investment and can save you time, stress, and money in the long run.
Attorneys for Every Step in the Process
Buying or selling a business is more than just a financial transaction—it’s a life-changing event that deserves careful planning and trusted guidance. From due diligence and tax planning to negotiating terms and managing employees, every piece of the process matters.
If you’re considering buying or selling a business, working with experienced legal and financial professionals is essential. At Smith, Paulson, O’Donnell & Erickson, our business law team has years of experience helping clients navigate these complex transactions with clarity and confidence. Ready to take the next step? Contact us today to schedule a consultation and start your business transition the right way.
