A professionally facilitated business purchase and sale transaction should have the following three foundational elements.

1. An Environment of Full Disclosure Between the Parties – The best decisions are made from a foundation of knowledge. Entrepreneurship has enough risk without parties having to make decisions from an incomplete data set.
2. Employment of Best Practices and The Proper Professionals – There is a knowledgeable, experienced, skilled way to do most things from maintaining an aircraft engine to building a home to performing heart surgery. Successfully facilitating the purchase or sale of a privately held company or family business is no different.  Assembling the best possible transaction team is prudent.  In most transactions attorneys, accountants, bankers, business brokers, wealth advisors, insurance brokers and others play important roles.
3. Empathy – The ability to place yourself in the mental perspective of the other party is important in any sophisticated, nuanced negotiation. Seeing a transaction with the eyes of the other party greatly enhances understanding of bottleneck issues and the ability to problem solve.

IBA recently held a joint office educational and brainstorming session with Miller Nash ( https://www.millernash.com/), a Portland based regional law firm with strong presence throughout the Pacific Northwest, to discuss best practices and current negotiating postures related to representations, warranties, and indemnification in transactions involving the purchase & sale of privately held companies, family businesses, and commercial real estate.  It is my opinion, with the possible exception of financial terms, that these three legal issues are the most important components of a purchase & sale agreement.  The primary burden related to these elements is placed on the seller in a transaction where they need to disclose, often through the use of comprehensive schedules, any material facts known about the historical operation of a business, and remain financially accountable for any significant issues that result from their tenure of ownership.  Failure to disclose can create significant post transaction risk.  Full disclosure creates a “safe harbor” for the exiting business owner as it is problematic to litigate for something that was known prior to acquisition.

So how does a seller mitigate their risk post sale?  In many cases a selling business owner is retiring and the last thing they want is to be kept up at night fearing potential litigation from a buyer looking for excuses to justify their deficiencies as an executive leader of the company.  It should never be overlooked that one thing that cannot be sold in a business sale is the executive ability of departing ownership.  New leadership will either be better or worse, they will never be exactly the same.  As a 31 year M&A professional who has successfully facilitated over 300 transactions, I have seen Harvard MBA’s back office manage wonderful, multiple decade community iconic companies to death and first generation immigrants to America who never went to university become financially successful pillars of their communities through hard work and natural business acumen as entrepreneurs.   The future of a company is unknown in any business sale.  I have also witnessed many attorneys representing buyers by design embedding verbiage in agreements that can be used as vehicles for litigation and potential financial settlements when client failure occurs due to their management failures by creating the illusion that important facts were not disclosed.

The answer to the question, how does a seller mitigate their risk post sale, is make the buyer accountable for review of information and inspection of assets.  At the start of this article, I conveyed that creating an environment of full disclosure between the parties is foundational to completion of a “win-win” transaction employing best practices, provision of the information is the selling parties duty and action item, review of it is the buying party’s similar duty and action.

Review and inspection of a company pre acquisition by a buyer traditionally has the following four components (There can be others):

1. Due Diligence – This is commonly the most significant component and the focus of the legal representations and warranties in the purchase and sale agreement.   Items covered in this area include financial records, operational & employee manuals, contracts, leases, staff, competition, vendors, past audits/litigation, etc.  Frequently the items shared during due diligence become part of the disclosure schedules associated with the purchase & sale agreement.  I often quote my retired schoolteacher mother when talking to buyers about due diligence, “The only dumb question is the one you do not ask”.  At IBA we strongly encourage buyers to assemble a comprehensive list of anything and everything they want to review about a company we are representing for sale after consulting with their accountant, attorney, banker, and any other desired consultants.  We strongly encourage our clients to satisfy every request and happily follow up on any omissions.  It is better for a fact, no matter who insignificant, to see sunlight pre-sale than not in a transaction.
2. Furniture, Fixtures, & Equipment – Tangible assets are delivered in “as is” condition in a business sale from the seller to the buyer.  A buyer should be asked to physically inspect the furniture, fixtures, and equipment before a transaction is completed.  Expert support of the buyer should be encouraged and welcomed.  A seller should disclose any known defects.  If a delivery vehicle has scratches and dents in a truck bed that should be known by the buyer pre closing.  If a vacuum cleaner died the day before closing it should be disclosed to a buyer and likely replaced, especially if the purchase & sale agreement has a clause promising maintenance of existing equipment and standard operating practices up until closing by the seller.
3. Inventory & Work in Process – One of the most common areas for post transaction confrontation between buyers & sellers involves inventory and work in process. It is important that pre closing that the buyer & seller involved in a transaction verify the quantities and values of these assets.  Buyers should bring into sunlight old, damaged, and obsolete items during this assessment process.  Sellers should ensure that quantities are correct, decide whether LIFO or FIFO should be used in valuation, and incorporate sales & overhead expenditures into the Work in Process valuations.
4. Facilities – Similar to furniture, fixtures, and equipment facilities should be thoroughly inspected whether a lease is being assumed or real estate purchased. The last thing a buyer wants is to not have a landlord address a leaky roof before signing a new lease or not identify environmental issues before acquiring real estate.

IBA is unique as a business brokerage firm.  We do not seek compensation from our clients until the project is completed.  We want to complete transactions in full sunlight and an environment of full disclosure.   We represent sellers, but look at buyers as future potential clients (I have personally sold one company four times representing buyers I sold it to in sales three of those times). The greatest compliment of a job well done an IBA business broker can receive is the return of a buyer who bought a business through them to sell.

If you are interested in facilitating a best practice business sale in an environment of full disclosure for a strong market value in 2025, 2026, or 2027 we would welcome the opportunity to learn about your business, exit strategy objectives, and provide an overview of our client services.  All conversations with IBA will be held in strict confidence. We promise to do everything in our power to mitigate your trailing liability post sale and hold the buyer accountable for doing the work necessary to acquire your business with open eyes.

IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, real estate, legal, accounting, banking, and wealth management communities on subjects relevant to the purchase & sale of privately held companies and family businesses.  IBA is recognized as one of the best business brokerage firmss in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.