Selling a small business can be a daunting process. Yet, with guidance and advice from a business purchase and sales attorney and qualified CPA, business owners can go through the process confidently and even come out ahead.
What Are the First Steps to Selling a Small Business?
First and foremost, the business owner must know if he or she is emotionally and financially ready to sell his or her business.
Once a business owner is ready to sell, he or she must determine the worth of the business. One important number is the seller's discretionary earnings, or SDE. SDE is calculated from the business' profit and loss statements and the owner's salary, benefits and expenses. Before setting a price, an owner should also take into account profitability, strength of his or her workforce and the location of the business.
At this point in the process, it is important to make sure that the business' books are complete and up to date and that tax returns are readily available should a buyer request them.
The seller should also determine what inventory and furnishings will be included in the sale. Once these are identified, a price can be set. Sellers must keep in mind that business prices, like housing prices, are lower than they once were. In the U.S., the median price of a private company fell 27 percent in 2008, from $551,000 to $400,000.
What Happens When Someone Is Interested in Buying the Business?
Hopefully, investing in good advertising will result in quick interest in the business. If a potential buyer makes an offer, it is important to check out the buyer's credentials to ensure that the buyer can, in fact, complete the transaction if the offer is accepted. After the buyer has confirmed his or her serious interest and sufficient funds to make the sale, the negotiating process is similar to that of selling a home. Sellers may make counter offers and propose conditions that are fair but profitable.
Negotiating business transfer terms is a vital part of the small business purchase and sale process. Sellers must consider factors such as liability (e.g., will the new owner assume all liability?) and ownership rights (e.g., will the seller be able to continue the trade without infringing on the buyer's rights?).
When a purchase price and terms are agreed upon, it is time to draft a proper sales agreement.
What Is a Small Business Sales Agreement?
A sales agreement is one of the most important documents in the selling process. It is the formal, binding contract between seller and buyer, and is best reviewed by an experienced business purchase and sales lawyer prior to signing.
In addition to basic information like the names, addresses, and background information of the seller and buyer, the sales agreement includes the purchase price, terms of the agreement, any inventory included in the sale, closing date and fees associated with the sale. It may also include a covenant not to compete and a plan to make the transfer of ownership smooth and efficient.
Though making the decision to sell a small business is daunting, understanding the process and making sure that the business is in order prior to putting a company up for sale will make selling a business go more smoothly. A qualified CPA can provide financial advice and an attorney experienced in business law can help ensure that you meet all of the legal requirements necessary for the sale of your business.
