IBA, as the premier business brokerage firm in the Pacific Northwest, is firmly established as a respected professional service firm in the legal, accounting, banking, mergers & acquisitions, real estate, and financial planning communities. Periodically, we will post guest blogs from professionals with knowledge to share for the good of owners of privately held companies & family owned businesses. The following blog has been provided by Roger Anderson in the document management division of AtWork! (www.atworkwa.org)
“Save It Forever”
When you’ve signed the contracts, cleared out your desk and handed over the keys to the new owner of your business you think, “Well, that’s the end of that”, and you move on to your next adventure.
And then, months or years later, you open your mail and find the past coming back to haunt you, even after making sure all the “I”s were dotted and the “T”s were crossed.
While this doesn’t happen every day, it is likely more common that you think; and the most typical post-sales “trailing liability” issues are federal and state tax audits, warranty claims, employee or customer complaints and litigation related to any of the aforementioned.
While typical tax audits only go back two to three years they can reach back six years and in the case of suspected civil tax fraud there is effectively no limit. Time limits for product liability issues vary from state to state but are typically two to five years and with statutes of repose could extend far beyond that. In the State of Washington the statute of repose for product liability is twelve years.
A common lawsuit related to the sale of a business, with at least a four year statute of limitation, would be for intentional or negligent misrepresentations. In these cases the buyer claims that the seller overstated the good and understated or neglected to mention the bad and that the buying decision was based on those misrepresentations.
We can all agree that the best outcome of any lawsuit, audit or complaint is for it to never have been happened in the first place. When selling your business the best way to avoid problems with trailing liability down the road is to work with a reputable firm that specializes in business mergers and acquisitions.
For the seller who’s asking, “ what do I need to do to sell my business without running into problems down the road?”, the first recommendation from most experts will be to be careful about what’s said and not said, and get everything in writing. Contracts, financial statements, emails, correspondence, notes of conversations and virtually all other forms of communications, if documented, can help you walk away from problems relatively unscathed.
So, the deal is done and you’ve pulled together every bit of information related to the sale and your business operations in writing, good job. Now for the important part, “Save It Forever”. We’ve already talked about how it might be years after the sale before an issue comes up; and the documentation you created all those years ago will be even more important than when the sale was first completed.
Should an issue arise the absence of complete and organized documentation of the sale and prior business operations leaves you with only your memories of what was written and what was said throughout your time in business.
Unfortunately, the judge or jury, the auditor or the mediator may assume that if no documents exist to substantiate your memories, that they never existed and a judge may allow the jury to infer that since documentation can’t be produced that it would have been harmful to your case.
The easiest way to “Save It Forever” is to scan the paper documents and save your electronic files all to a PDF format, then make multiple copies onto CD’s, DVD’s or thumb drives.
There are a variety of great reasons to use PDF (Portable Document Format).
For an electronic document to be admissible for tax purposes or in a court of law, it must be created in a file format that cannot be altered without leaving an electronic footprint. A PDF file is a “read only” document that meets that requirement and all others related to archived business documents.
PDF files are compatible across multiple platforms. Regardless of your hardware, operating system or the application software used to create the original PDF, it will be accessible. It was designed specifically to be shared across multiple computer platforms.
The PDF format allows for great compression. Whether you are scanning a paper document or converting an electronic document to PDF the final size will be approximately 25% of the original. This small size allows PDF documents to open quickly and reduces the storage space required to archive your information.
One of the biggest advantages of PDF files is that they can be retrieved, viewed and printed with the free Adobe Acrobat Reader. Adobe Acrobat can be downloaded directly from the internet on any computer, assuring that your files are always available.
The PDF format isn’t just a passing fad. It was originally developed by Adobe for the US Federal Government to store its legacy files, and they remain the largest user of PDF technology which virtually guarantees that the PDF file will remain as a long term format standard.
As a retired or retiring business owner you have many more important or enjoyable things on your mind than scanning and converting documents to an archive system. So, whether you tackle the job on your own or find a local business specializing in document conversion to do the job, you really do need to “Save It Forever”.
If you would like to learn more about “best practice” document management procedures related to the sale of a privately held company, Roger Anderson of AtWork! is available as a resource at (425) 533-8676 or firstname.lastname@example.org.