Business Transfer: How to nail the biggest economic decision of your life

Handshake
The old saw of selling is “I’ll let you set the price if you let me set the terms.” What it means is that the Devil is in the details and if you are selling a business that you have lovingly built with your sweat and sacrifice (and that you now want to get the maximum value from) then you had better be prepared to get to know your buyer very well and be prepared to spend some quality time with your lawyers and accountants. Understanding what it is that your potential buyer really wants and what it is worth to her can be the difference between a happy and harmonious transfer and a would-be suitor and a jilted bride snarling at one another while the lawyers circle, cackling madly like hyenas.

What your buyer wants:

When a potential buyer approaches you about buying your business they could actually be after many different things: your client list, your brand equity, your physical assets and real estate, the talent of your employees, even your tax credits and loss carryforwards.
Conversely, what your potential buyer does not want is any unseen baggage or hidden or unknown liabilities. What keeps him up at night is nightmare of buying your company only to face a class action lawsuit the next day from tiny elves claiming they were forced into slave labor by a now defunct affiliate at their bakery in Keyblurville. Therefore, ideally the buyer would like to separate the items of interest and value from the company from potential liabilities and only buy the good, not the bad.

What you, the seller want

This one is the easy part, because you know very well what you want… Or do you? Usually if your selling a business either someone is offering a price that you feel like you can’t refuse or you are looking for a way out to move on to other things. Considerations include whether you will continue to have an interest in the business (through an ownership stake, a long-term note or continued employment), whether the buyer will want a non-compete agreement and whether you could afford one. Also important will be payment terms and making sure that you are protected in the event of a default. Finally, the tax burden upon the sale should weigh heavily on your mind. Your goal is scheduling as much gain as possible as long-term capital gain, which is taxed at a maximum of 20% and in delaying the gain over a period of time, which can be possible with an installment sale. Also, you current tax situation can play a big part in structuring the sale.

Coming to terms

Essentially, a well-structured business sale involves both parties putting their cards on the table in the company of their lawyers and accountants and coming to terms. While no one wants to show their hand as to what is the minimum price they would accept nor the maximum price they would pay, it is in the interest of both parties to have clear communications and trust. Keep in mind that many sales of small businesses are a long time in the planning and a still longer time in the transition. Treat the other party like a business partner and remember, if they are someone that you can’t trust or stand being around now, how do you think you are going to feel about them many months into selling your most important asset?

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