Tips on selling your business
Question: How can I maximize the amount of cash I receive when selling my business?
Answer: Get every last post-tax dollar and get cash. Also follow three critical steps before proceeding:
- Plan the sale of your business. It should not be an incentive of the moment’s decision. It should be planned in advance. Although it is not possible to control the external environment, such as interest rates and strength of the economy, it is possible to plan an orderly transition. Start thinking about some obvious sources for a potential buyer. For example, should an employee be looked after for possible succession? Can a good customer be interested in obtaining your business in case of sales?
- Recognize the importance of finding the right buyer. Most businesses do not have a value set in stone. Instead, they have a range of value. This means that different buyers will have different perceptions of the same business value. It is important to plan your confidential marketing effort in advance to get exposure to multiple buyers, especially synergistic buyers. Synergistic buyers are those individuals who, because of their location, complimentary client base, financial resources or market position, can benefit more from owning your business and are therefore willing to pay more.
- Consider getting professional help. Unless you have a background in taxes, legal issues and mergers and acquisitions, you will probably be unaware of some costly mistakes by selling your business yourself. These errors can cost you much more than any fees paid for competent professional help. Do homework on various alternatives. Informed by attending seminars on tax issues, estate planning, et cetera. Ask your CPA or attorney to recommend general knowledge seminars that can help your learning curve.
Question: How do I legally limit my tax liability when selling my business?
Answer: Plan in advance by reviewing your corporate structure. This will enable you to maximize the amount of returns you retain from your business’s ultimate sales.
As expected, the tax rules make it difficult for any quick fixes to bring immediate benefits. Consider changes in structure that can now result in more favorable tax treatment when the business is sold in five or ten years.
Start with the speed of recent developments in the tax code. Chances are the code is very different today when you buy or start your business. So sit with your professional adviser and review your current business structure and its relevance to your business’s ultimate sales.
For example, if you are structured as a corporation, the considerable difference between you and taxpayers depends on whether you continue to sell or sell. The sale of the corporation’s assets may result in corporate income tax returns as well as the individual level as the remaining proceeds are distributed to the shareholders. However, if the shareholders sell their stock, it is likely that the capital gains regulations will apply. The difference it causes can be great.
Paying our share of taxes in the United States is an economic reality of life. However, tax rates in selling a corporation can range between 45% and 85% of the selling price only on tax structure issues. The earlier you start planning for selling your business, the greater you will be to reduce tax obligations.
Question: When is the best time to sell your business?
Answer: The best time to sell your business is determined by careful consideration of the factors that can be controlled and cannot be controlled to maximize the amount of cash you receive. These factors include:
Environmental / External Issues – Beyond our Control
Low interest rates and a low level of liquidity and a vibrant economy create an ideal scenario for mergers and acquisitions. Obviously we have enjoyed this scenario in the United States over the past few years. As a result, there is a spate of activity in corporate America as well as small business America. Well-established, healthy businesses sell relatively easy for multiple multiples. Yet, as we all know, the economy goes into cycles. If selling your business is on the immediate horizon, you may need to consider bringing the sales decision forward to take advantage of these robust circumstances.
Internal issues within our control A
potential buyer will pay significantly more for a business that shows a consistent record of increasing revenue and profitability. But all too often, a business can stagnate or even decline because the owners have taken their foot off the accelerator. Being burned out and other health issues is probably the most common reason for a small business owner who wants to sell. It is understandable, but often manageable. Recognize the warning signs and take all possible affirmative action. Again, the choice to sell for a good price while the business is alive is much better than forcing a sale due to health or other issues affecting revenue and reducing the business value.
Above all, think with the head and not with the heart. A decision to sell can be very difficult for a host of good reasons. Most small businesses do not have management boards. However, sometimes it is wise to seek out-of-court advice from respected trust or professionals. These individuals bring a fresh perspective and insight that will help you make good strategic decisions for the future of your business.
Question: When a business is sold, what liabilities is the buyer responsible and what remains the obligation of the seller?
Answer: Generally, whether it is an asset sale or a bond sale, just remember that sellers are obliged to provide buyer assets. Although all transactions are unique, buyers will generally accept liability for the following: real estate leases unless they relocate the business; accounts payable (and if they do, they will also get the accounts receivable); advertising commitments such as Yellow Page contracts; Customer deposits, provided seller sells a similar amount of cash to buyer; and any other liabilities agreed in writing.
Sellers will typically be obliged to pay off the sale the following orders: credit lines; installment debt and / or leases relating to vehicles, computers, equipment; all obligations to employees until the closing date; all tax related matters; and any other debt that any claim against any of the assets transferred to the buyer.
There is another issue related to liabilities. The seller is obliged to provide the buyer with strong guarantees and representations (guarantees) that there are no unknown or unknown liabilities that can create claims against the assets being sold. The California Bulk Sales Law essentially states that a buyer can be held liable for goods transferred to him or her that were not paid by the seller. Clearly, all buyers want and are entitled to protection to pay twice for the same goods.
In summary, it is imperative that both buyer and seller commit to everything in writing (ie no verbal agreements) and that both sides are suggested by competent legal advice before signing on the dotted lines.