31 Mar Selling Your Business
At some point, every business owner has thought about or should think about what happens to their business beyond them. Some business owners want to plan for business succession planning to make sure the business stays in the family. Others have a plan for a long-time manager or employee to take over/buy into the business.
Others may look at an outright sale so that they can retire or can transition into other opportunities. While I certainly deal with and can assist you in business succession planning as well as partnership buy-in plans, this blog is focused on outright sales to unknown third parties.
If you are starting to think about selling your business as an option, there is a lot to consider. One of the first things to address is what is the value of your business and are your books, records, policies and procedures in good shape to support a sale? Engaging professional help at this stage can help you prepare for a sale and even increase the value of your business. Depending on the complexity of your business and your record-keeping, this stage can also take some time, so it is best to plan ahead for this before you actually need or want to sell your business.
Once you are ready to actually entertain offers, it is crucial to make sure potential buyers are vetted and sign documents such as letters of intent BEFORE you give them any of your business and financial records. This stage should address issues including confidentiality, return of materials, and due diligence. Due diligence refers to the time period where a potential buyer has access to your books and records to investigate and confirm whether your business is one they want to proceed with purchasing. This time period should be lengthy enough to allow a purchaser enough time to review documents, and they should be engaging professional assistance during this stage. Does your business have an existing SBA loan, such as an EIDL (Economic Injury Disaster Loan)? If so, you’re going to need to communicate with the SBA, and in some cases get their sign-off about a proposed transfer of the business. This process can also take some time and should be addressed well in advance of a sale and certainly before signing any documents.
Other considerations include how the sale is going to be structured. Is this an asset sale or a stock/membership interest sale of the entire business? How is the purchaser funding the sale? Bank financing is a process that can take time, but it avoids you as the Seller getting into a situation where you are seller financing for the purchaser. I am always very cautious about seller financing scenarios.
If you have a lease, that lease should address in what circumstances you can potentially assign the lease or transfer the lease to a buyer. That also means getting landlord approval for a sale. What training or management assistance post-closing does the purchaser want or need as part of the deal, and what are you willing to offer?
Have all of the terms been fully negotiated before documents are signed? Not engaging professional help (tax and legal advice) during the negotiation process can result in unintended consequences for your sale. It’s also important to have sale documents professionally drafted by an attorney who handles business sale transactions. Buying or selling a business has serious legal and tax implications. This blog has addressed just a few of the potential issues you might encounter. Let’s talk about it.
918-938-1322; jamie@jmillerlawfirmpllc.com
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