Selling Your Business, p.4

Accounts Receivable

Are your credit terms customary? Do you collect receivables in a timely fashion? What percentage of your receivables is aged, and how aged? Is more money than is necessary tied up in accounts receivable? In an economic downturn, such as we’ve experienced recently, will your wholesale customers be likely to go into bankruptcy and will your retail customers continue to spend money on your products and services? Consider whether making the effort to tighten up your collections will be worth it.


Employees are always impacted by a sale, and employees have a disproportionate ability to impact the sale. There will be some employees of yours whose continued loyalty will be significant to the ongoing vitality of the business, and a few who are so important the buyer will insist on knowing that they will stay. There will be some who will be essential only during the transition, and some whose jobs will be terminated. While the fate of each employee can’t be decided until later in the process, you should think about what you can do to ensure that the employees you need to retain stay committed to the business during what can be an unsettling time for many. Do you have severance policies in place? Would you consider retention bonuses for significant players? Consider also the shifting of loyalties that inevitably occurs in a sale, from you to the buyer, who will be the new employer.

Some employees may have contracts. Review those carefully. Don’t forget that there may also be federal or state laws that require prior notice in the event of layoffs. Employees will be concerned with whether or not they will retain their positions as well as their benefits. The mechanics of how that will be handled need to be addressed and communicated.

Contracts & Third-Party Relationships

All contracts need to be reviewed to ensure they are current and to determine whether they will transfer to the new owner. Depending on the form of the transaction, you will have to review assignment clauses or change in control clauses. During a diligence exercise, I sometimes find that some contracts have long expired or that the written terms of the contract no longer reflect the practice between the parties. To the extent a contract is critical to the business, you might want to negotiate an update. What is a critical contract depends on the business itself. It could be a contract with important customers, large suppliers or suppliers of unique products. It could be a supply contract that provides a price advantage not available on the open market. It could be a license for technology essential for your processes or products. If there are critical contracts that are nonassignable by their terms, or might terminate with a change in control, assess how best to address that. Sometimes your buyer might be able to persuade the third party to deal with it. Sometimes there might be an alternative you can identify. Remember also that the software you use to run your business might be subject to restrictions on the number and locations of users, among other things.

Important relationships might not be subject to a contract. How will you be able to persuade your buyer that those relationships will be transferred to it with the business? This is especially important where the third party is a considerable portion of the customer or supplier base of the seller. Understand the motivations those parties have to conduct business on the same basis they have historically.