What Happens Behind The Scenes (Due Diligence) When a Business Goes SALE PENDING?

After a seller of an accounting firm talks to and meets with potential buyers about acquiring the seller’s practice this is what typically happens. One or more of the potential buyers will make an offer in the form of a Letter Of Intent or LOI. The seller will compare and choose the best offer that makes sense for his or her clients, as well as the staff that intend to continue working for the buyer or new owners.

Although letters of intent tend to be non-binding they often contain what is called a “No Shop Provision“. This is a clause included in the LOI between the seller and the buyer that prevents the seller from soliciting purchase proposals from other parties for a given duration of time. That time typically coincides with the Due Diligence period that the buyer and seller go through together.

For anyone new to buying an accounting practice, due diligence is the process where you collect and analyze more detailed ‘seller’ financial and business information before making decision to purchase the firm. Tax returns, profit and loss statements, sample work files, workflow documentation, software contracts and any office rental agreements can be part of the information reviewed during due diligence.

At the same time if the buyer is using bank financing to purchase the practice, they are also working with one or more lenders to receive approval for their loan to buy the firm. Here at ABA Advisors we work with regional and national lenders who like these types of accounting practice acquisition loans and if needed we can refer you to them. Click here for more information on financing.

Once due diligence is completed then the buyer will draft a purchase agreement that is binding and they and the seller will work together towards a target close date. When financing is involved with a bank it is common for the lender to suggest a closing date that allows them to fully underwrite and approve the loan within the timeframe leading up to the closing.

As the broker we will tell and try to let potential buyers know that a listing they were previously interested in now ‘Sale Pending’ and that although we can talk to them, we cannot refer or introduce them to the seller during the sale pending phase while the buyer is performing due diligence with our seller.

Although it is somewhat rare, if a buyer stops moving forward with their potential purchase during or after due diligence, we will re-contact other previous potential buyers to let them know the accounting practice is back on the market and now ‘Available’ again.

If this happens and as they say, the deal ‘falls through‘ as a buyer you don’t have to view a firm being back on the market as a bad sign. There can be many reasons a buyer backs out of the purchase. They may not have the amount of money needed for a cash injection into the bank’s loan for them. The buyer may have bad credit. We once had buyer moving through due diligence and one weekend their spouse asked them for a divorce, which put a stop on their wanting to buy a firm.

Here at ABA Advisors we track in our database potential buyers and their interest in specific firm for sale where they have already signed an NDA or non-disclosure agreement. So if you receive a phone call or email that a listing you are interested in goes ‘Sale Pending’ if that buyer does not go through with their purchase, we will let you know.

The best thing for you to do in that case is make sure we have your best email address(es) on file as well as your mobile number so we can call and text you as to the status of your listing of interest.