The sale of a small business can be a boon for the owner, providing a nice windfall while at the same time freeing their attention to focus elsewhere. Whether you plan to sell your business to pursue additional entrepreneurial activity or simply to retire on, there are certain things you must do to see the sale come off without a hitch. With the help of a Creative Business Lawyer®, the following necessities are easily accomplished:
Set a realistic price. You wouldn’t pay $100,000 for a Honda Civic, reliable though it may be. Putting a reasonable price tag on your business cannot be based entirely off your own perception of your achievement, but off serious research into the market value. You know your industry; what do similar businesses sell for? Your industry association should be able to provide you with information on sales trends. Don’t forget to include the actual assets your business holds–and even customer goodwill(!)–in your valuation. It’s often helpful to work with a CPA who is experienced in valuing closely-held companies.
Consider taxes. You have gotten your business this far, so you’re surely aware of the complexity of the US Tax Code. To avoid any unpleasant surprises, you must be sure to know what taxes apply to the sale of your business. The two factors that affect this are the structure of your company (corporation, LLC, partnership, or sole proprietorship) and whether you put the entire corporate entity on the market or are simply liquidating its assets.
Get financials in shape. Your tax returns will need to be recast if you plan to sell your business. You’ll want to add back any discretionary expenses that your prospective buyers may not spend–your family’s medical insurance or bonuses, for instance. Consulting with a tax attorney or accountant will set you on solid ground.
Advertise. If you’re lucky enough to already have a buyer lined up, jump on to the next paragraph! Most business owners, however, must put their company out there to attract a buyer. A buyer need to be aware of your business before they can approach you, so advertise where you will be seen–local newspapers, trade publications, and on business sale websites. A word of warning, though – you may not want your customers, employees, and competitors to know that you are selling your business until the deal is done. Advertise with general terms that won’t put everyone on red alert; say “mid-sized dry cleaning business in uptown” instead of “Gary’s Dry Cleaning on Main Street”. A business broker is an option to keep you from going to the hassle of advertising, but you must be willing to pay a commission for the service.
Negotiating the sale. The complicated nature of negotiating the sale of your business is where the counsel of a Creative Business Lawyer® is absolutely indispensable. In the process of negotiation, you will be disclosing intimate details about your business’ financials and methods of operation – things you wouldn’t normally want to share with the public or your competitors. It’s important to have a non-disclosure agreement in place before divulging all that information, and it’s important that the agreement is drafted in a way that it will be enforceable, otherwise it won’t be giving you the protection you think you are getting. Enjoy the peace of mind of knowing that your experienced attorney will help you strike the best deal possible and keep your valuable information safe in the meantime.
Developing a sales agreement. A sales agreement can be complicated and your future could hang on the phrasing of a single clause, so be sure to keep your Creative Business Lawyer® involved. The agreement should include a list of assets included in the sale and their value, all contracts and business relationships the new buyer will be carrying forward, and the structure of the sale–especially how you will be paid!
Closing preparation. Do consider what your buyer will need at closing. Craft a list of all documents you’re passing to the buyer, along with miscellaneous items like building keys and security codes.
Filing the IRS paperwork. An Asset Acquisition Statement will need to be filed with the IRS by you and the new owner. Don’t forget to include it with your tax returns.
If you’re a small or mid-size business owner, call us today to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit. Normally, this session is $1,250, but if you mention this article and we still have room on our calendar this month, we will waive that fee.
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