Selling a Business
What You Need to Know Before You Sell Your Business
Your business is successful, and you have enjoyed a good run. But now, you are considering selling. Where to start? Here are seven, pre-sale steps we at Lusthaus Law recommend that you consider:
I. Organize your Business Documents
Before you can sell your business, your paperwork must be in order. This means compiling your company’s:
- Financial information
- Tax forms
- Insurance policies
- Professional certifications
- Vendor contracts
- Customer information
- Confidentiality/non-disclosure agreements
- Employee job responsibilities
- Employment agreements
II. Determine Your Business’ Tangible and Intangible Assets
Tangible assets represent physical assets, including real estate, equipment, and inventory. Intangible assets are not physical. These may include goodwill, brand recognition, intellectual property (such as trademarks, copyrights, and patents). While intangible assets can’t be measured quite like tangible assets, they play an important role in calculating the company’s value. Understand the value of both.
III. Review Available Business Valuation Options
There are several strategies for valuing your business. These include:
• Income method. This method values your business based on projected revenue and considers potential risks.
• Market method. You compare your business to similar businesses that have recently sold.
• Asset method. This adds up the value of your business’ assets and subtracts your business’ liabilities.
IV. Set an Appropriate Price for Your Business
How much is your business worth? You need to know that number before you put your business up for sale. The key is to ensure that your assets, both tangible and intangible, are properly valued. Be realistic. You may think you know what your business is worth, but it is best to get a reality check. We recommend you consider working with a qualified business appraiser, who, as a neutral party, will calculate the worth of your business based on facts, not emotion to ensure that the business is assessed appropriately.
V. Find a Buyer for Your Business
At Lusthaus Law, we know that half the battle in selling a business is finding a buyer — unless you already have an offer in hand. In some cases, key employees may offer to purchase your company. Then, the only remaining step is to negotiate the right price.
If you don’t have a buyer in place, consider engaging a business broker to find and vet a potential buyer. Your broker will identify and contact potential buyers and serve as the primary point of contact for interested parties. Your broker will answer questions, enforce confidentiality and negotiate on your behalf to maximize the final purchase price. The benefit to you as a seller is that while the broker searches for the right buyer, you, as the business owner, can continue to manage day-to-day operations.
VI. Create a Contract of Sale
With a confirmed buyer and an accepted offer, the next step is to have your attorney create a contract of sale. Often referred to as an asset purchase agreement, this contract specifies which party is the buyer and which party is the seller, what is being sold (typically, the business assets), when the sale will be finalized and how the deal will be structured.
Typical contracts of sale identify:
- Buyer and seller information;
- Assets being sold;
- Negotiated price;
- Terms of payment;
- Each parties’ pre-closing obligations;
- Closing documents; and
- Possible lease assignment.
Selling a business is a big undertaking. It can be as complicated, if not more so, than starting a business. Work with experts. Talk with your accountant and financial advisor. And when it comes to making sure all “i’s” are dotted and all “t’s” are crossed, consult a knowledgeable lawyer to help oversee the business selling process. Got questions, let’s talk. Feel free to reach out to me, Julie Lusthaus at [email protected], and let’s connect. Contact Lusthaus Law today.