FAQ for selling a business
Here are some common FAQs from those who are thinking of selling their business. If you are question is not here, email it to me and I will respond as soon as I can.
If I am thinking of selling my business, where should I start?If I know I definitely want to sell, what's my next step?
What sort of valuation do I need?
What else is important to consider when selling your business?
Should I consider getting help when selling my business?
Should I sell the business myself or use the services of a business broker or business intermediary?
What legal documents will I need to sell my business?
How long does it take to sell a business?
What are some of the reasons a business never sells?
What is the difference between an Asset Sale and Stock Sale?
Should I expect all cash when selling my business?
If I am thinking of selling my business, where should I start?
One of the most important places to start if you are thinking of selling your business is to know what you will do once the business sells. Too many business owners start the complicated process to sell their business and stop half way through because they do not know what they will do if the business gets sold. Not only is this a waste of time and money for the seller, but it can cause damage to the business as competitors, suppliers, employees, customers or landlords can find out.
If I know I definitely want to sell, what's my next step?
If you definitely decide to sell its important to
do to two separate things. The first is to make sure it is clear what
you are selling and then get a valuation so you know what the business
is worth. If the business includes real estate, appraise this
separately from the business.
What sort of valuation do I need?
If you are appraising the business there are two
sorts of valuations. The one you use varies on your situation. For
example, if you own 100% of the business and have no minority
shareholders you will want a Brokers Opinion of Value. If the
business is owned by partners or shareholders you may be able to use a
Brokers Opinion of Value, but if one partner or shareholder is not
happy with that approach as they feel the valuation is too high or too
low, then a valuation will be required that appraises the specific
shareholding being sold. This appraisal is more technical and
expensive as the appraisal document needs to meet necessary standards
set by USPAP in case the issue goes to a court of law.
What else is important to consider when selling your business?
An important item that a lot of business owners
do not consider is how much tax needs to be paid if the business
sells. This is relatively easy to find out by talking to your
accountant or a qualified professional.
Should I consider getting help when selling my business?
Selling a business is a complex process as there
are many moving parts. These moving parts vary depending on the
industry the business is in, the sophistication of the buyer and
seller, if a third party loan is required, the different type of legal
documents needed, the importance of confidentiality and many other
factors. Subtle things also come into play such as the ability to
negotiate and what to disclose at what point in the transaction.
Getting the help of professionals to handle all the critical points is
definitely the best way to go as it leaves the seller to do what they
do best; focus on running the business at its highest level so a
would-be buyer does not need to be concerned that the business is
declining.
Should I sell the business myself or use the
services of a business broker or business intermediary?
My answer to this question is that I definitely
recommend you use the service of a business broker or business
intermediary. As a member of the International Business Brokers
Association (IBBA) and the California Association of Business Brokers
(CABB), I am able to stay up to date with the constant changes in our
industry and the professional help I can offer both buyers and
sellers.
What legal documents will I need to sell my business?
There are many legal documents you will need and
these will vary according to the business you are selling. At a
minimum you will need a Non Disclosure Agreement (NDA) or
Confidentiality Agreement. This document at its simplest level binds
the person who signs the document not to disclose any information
given to them so the business being sold is not damaged. You will
also need a Purchase Agreement. This can be a simple to very complex
document and you obtain this from your business attorney, or if you
are using a business broker they will have one as it applies to your
Country or State/Province. Other documents to use include Disclosure
Statements so both parties are fully informed about the transaction
they are about to enter. It is also very helpful for the seller to
have an executive summary of the business so it is clear what is for
sale as well as existing documents such as the lease and any contracts
you want the buyer to assume or take over.
How long does it take to sell a business?
The length of time it takes to sell a business is
between 6 to 9 months. Once a business starts being advertised, buyer
inquiries will start to filter in. The normal pattern is for a number
of buyers to inquire and then simply fall away as they either do not
have the skills, finance or some other inability to buy the business.
Hopefully a qualified buyer will emerge. They will make an offer and
with the offer include a number of contingencies which they remove
during the due diligence process. Once due diligence is complete,
escrow opens so all the agreements and legal formalities can be
finalized and the business transfers from the seller to the
buyer.
What are some of the reasons a business never sells?
There are many reasons a business never sells.
The most common reason is that the price the seller wants is too high.
This is why it is important for the seller to get an accurate value on
the business. If the price is too high it simply delays the business
selling and these delays can damage the business and thereby further
reduce its value.
What is the difference between an Asset Sale
and Stock Sale?
There are generally two ways the business can
transfer ownership from the seller to the buyer and these vary
depending on the legal structure of the seller. If the seller is
trading as a Sole Proprietor then the transfer can only be an Asset
Sale. If the seller has a corporation then the business can transfer
either as an Asset Sale or Stock Sale. As a rule, the seller will
prefer to sell the business as a Stock Sale whereas the buyer will
prefer an Asset Sale.
Should I expect all cash when selling my business?
If a buyer makes an all cash offer they will
generally do so at a lower price than the business lists for sale.
When a buyer and seller enter into negotiations, the price the buyer
offers is generally not the most important item. What is more
important are the terms and conditions which include whether the buyer
needs the seller to carry a note, the length of time and interest rate
to be paid on the note, the buyers down payment, the buyers credit
score, credit report and management experience.
