Selling Your Business: A Brief How-To

If you have made the decision to sell your business, do you know what the next steps are?

This is a very basic overview of some of the issues involved in selling your business. and should not be taken as legal advice or as pertaining to a specific type of business or industry.

If you have questions about your specific business needs, please contact our office at (818) 835-1242 or via e-mail at info@tarasyuklawoffices.com.

 

Preparation– Before you get into negotiations for the sale of your business, you need to make sure that you understand what the sale process entails and get organized. 

  • Types of Sales: Generally, there are two types of sales, an entity sale and an asset sale
    • Entity Sale (stock sale if corporation)
      • Assets & liabilities
      • With the exception of payroll taxes that were withheld but not forwarded to the IRS and personal guarantees made by the seller, the seller becomes free of obligations of the business, such as back taxes, leases/rent payments, and money owed to employees
    • Asset Sale
      • Seller retains business obligations and debts
      • Capital gains taxes for seller on profit in the sale of assets (except for assets classified as inventory)
  • Valuation: You need to have an idea of what the business is worth, which will vary depending on the nature of your business, your clients, assets, and other factors.
    • General and industry experts
      • General
        • Accountant
        • Business broker (need broker agreement)
        • Business appraiser
      • Industry expert – every industry is different, so valuation experts will be business or asset specific
    • Factors:
      • Assets
      • Trade secrets
      • Customers
      • Goodwill / name
  • Accounting
    • Financial statements
    • Tax returns
  • Documents: You must get organized, and it is better to do so in the beginning, because once you find a buyer, the buyer will go through a period of due diligence where he/she will request and be entitled to examine your business records and practices.
    • Organizational chart
    • Vendors, customers, employee list
    • Internal policies & procedures
    • Employment agreements
    • Vendor agreements
    • Inventory list
    • Outstanding liabilities
    • Confidentiality Agreement
    • Selling Memorandum
      • Confidential informational document for prospective buyers
        • Operations of business
        • Management
        • Products/services
        • Purchase price
  • Advertising
    • Word of mouth
    • Broker listing

Negotiation

  • Purchase price
  • Financing
    • Lump sum, installment, etc.
    • Financing – promissory note & security agreement/collateral
  • Non-compete of seller (if buyer insists)
  • Indemnification
  • Letter of Intent

Due Diligence (inspection period)

  • Physical inspections
  • Financial records, including projections and valuation reports
  • Company records
  • Contracts

Documentation

  • Letter of Intent
  • Broker agreement if business broker is used to sell the business
  • Purchase agreement (mirrors Letter of Intent)
    • Identification of buyer and seller
    • Purchase price and method of payment
    • Actions that the buyer and seller must take prior to closing
    • Closing date
    • Representations and warranties of the buyer and seller
    • Confidentiality provisions
    • Exhibits of other relevant documents
  • Bills of sale for equipment
  • Organizational agreements (bylaws, operating agreements, etc.)
  • Stock certificates

During and Post-Sale

  • Obtain necessary tax/business clearances
  • File federal and state  tax and business forms
  • Close/transfer business bank accounts
  • Cancel insurance (unless transferred)
    • Check with insurance re: general liability tail insurance for any liabilities that could arise after the sale

 

 

If you are thinking about selling your business, schedule your free consultation today!

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