There’s a version of selling your business where diligence goes smoothly, the buyer’s questions get answered in a day, and the price you agreed to in the letter of intent is the price at closing.
That version happens when the cleanup was done before anyone went looking.
The opposite version is more common. A buyer’s lawyer starts pulling threads, finds four or five things that are unclear or unsigned or expired, and every one becomes a reason to hold back money, extend the escrow, or reopen price. None of those items were catastrophic on their own. They were just unresolved.
Here’s what a buyer’s lawyer looks for, so you can find it first.
Your corporate records
This sounds like the boring part. It’s the part that stalls closings.
- Is your entity in good standing with the state? Are annual filings current?
- Do you have your formation documents, operating agreement or bylaws, and any amendments — signed?
- If there are multiple owners, does the operating agreement or shareholder agreement match reality? Does it say anything about who can approve a sale, and does anyone have a right of first refusal?
- Are there any past owners, investors, or people who were promised equity in a conversation that never got documented?
That last one is the killer. A buyer will not close on a business where someone might turn up later claiming they own a piece of it. If there’s an old promise floating around, resolve it now, while it’s cheap and the relationship is calm.
Your contracts
Pull every contract the business runs on: customers, vendors, suppliers, distributors, service providers, anything recurring.
Then ask three questions about each one:
- Is it signed? A surprising number aren’t.
- Can it be transferred? Many contracts require the other party’s written consent before they can be assigned. If your three biggest customers all have that language, the buyer needs those three signatures — and you probably want to know their likely reaction before you’re at day 50 of a 60-day exclusivity window.
- Is it current? Expired agreements the parties keep honoring by habit are common, and they’re worth less to a buyer than a signed contract with time left on it.
Recurring revenue under signed, assignable contracts is one of the highest-value things you can hand a buyer. Recurring revenue under handshake arrangements is just a hope.
Your lease
If the business has a location, the lease is often the longest item on the closing timeline.
Find out now: how much term is left, whether there are renewal options, whether assignment requires landlord consent, whether there’s a personal guarantee, and whether the landlord has to release you from it.
A lease with two years left and no renewal option is a problem for the buyer, which makes it a problem for your price. If that’s your situation, negotiating a renewal or extension before you go to market is often worth real money.
Your people
- Is everyone classified correctly? Contractors who function like employees are a live liability, and they’re one of the first things a careful buyer’s lawyer checks.
- Do you have signed offer letters, confidentiality agreements, and — where appropriate — invention assignment language?
- Are your key people likely to stay? Buyers price that in. If the business depends on two people and neither has any reason to stick around, the buyer is buying more risk.
- Do you have a handbook and current policies?
Misclassification is worth flagging twice, because it’s fixable in advance and expensive in the middle of a deal.
Your intellectual property and your name
- Is your business name actually protected, or just used? A registered trademark is an asset the buyer is paying for. An unregistered name is a question mark.
- Who owns your logo, website, and marketing materials? If a freelancer built them with no written assignment, they may still own them.
- Do you own your domain and social accounts, in the business’s name — not in a former employee’s personal account?
- Is customer data documented, and is it in a form that can actually transfer?
Your licenses and permits
Confirm every license and permit the business needs, and confirm each one is current. Then find out whether it can transfer or whether the buyer has to apply on their own. In regulated industries, that answer sets the closing timeline more than anything a lawyer drafts.
Your loans, liens, and obligations
- What’s secured by business assets? Get payoff figures.
- Are there old liens from paid-off loans that were never released? These turn up in a title search and take time to clear.
- Any personal guarantees you’re carrying? Getting released from them is part of the deal, and it doesn’t happen automatically.
- Any equipment leases or financing that has to be paid off or assumed?
What your numbers say about you
Your lawyer isn’t your accountant, but the two areas overlap here. If your financials mix personal and business expenses, or your books need a translator, the buyer discounts what they can’t verify. Clean financials for the two or three years before a sale are worth more than almost any other preparation. That’s a conversation for your CPA, and it’s a conversation to have early — the tax consequences of how you structure a sale can be larger than anything you’d negotiate over in the purchase agreement.
How far ahead to start
Twelve to twenty-four months before you want to sell is the honest answer. Some of these items — trademark registration, a lease extension, fixing a classification problem, cleaning up an undocumented equity promise — take months and can’t be rushed once a buyer is watching.
If you’re already in a process, that’s fine. Do the cleanup you can and disclose the rest. Disclosed problems get negotiated. Discovered problems get punished.
The pattern we see most
An owner gets an unsolicited offer, likes the number, and signs an LOI within two weeks. Diligence starts. The buyer’s lawyer finds an operating agreement that was never signed, a key customer contract that expired last year, and a former partner who left in 2019 with no written buyout.
The deal doesn’t die. But the price moves, the escrow doubles, and closing lands four months later than planned. All three of those items could have been handled in a quiet month with no buyer watching, at a fraction of what they ended up costing.
What to do next
If selling is anywhere in your three-to-five year plan, a readiness review is the cheapest work you’ll do in the whole process. It’s a look at your entity records, contracts, lease, people, and IP, and a short list of what to fix in what order.
Holmes Business Law helps owners across Pennsylvania and New Jersey get ready to sell a business — corporate cleanup, contract review, lease strategy, trademark protection, and the deal itself when the time comes.
