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Don’t Give Presentations Or Speeches. Give Leadership Talks Instead.
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Tips to maximize the sale of your business
Question: How can I maximize the amount of cash I receive when I
sell my business? Answer: Acquire every last after tax dollar
and get paid in cash. Also, follow three critical steps before
proceeding:
1. Preplan the sale of your business. This should not be a spur
of the moment decision. Rather, it should be well planned in
advance. Though it is not possible to control the external
environment, such as interest rates and strength of the economy,
it is possible to plan for an orderly transition. Start thinking
about some obvious sources for a potential buyer. For example,
should an employee be groomed for possible succession? Might a
good customer be interested in acquiring your business in the
event of its sale?
2. Recognize the importance of finding the right buyer. Most
businesses don't have a value that is set in stone. Instead they
have a range of value. This means that different buyers will
have different perceptions of the same business's value. It
becomes important to pre-plan your confidential marketing effort
to gain exposure to multiple buyers, especially synergistic
buyers. Synergistic buyers are those individuals who, because of
their location, complimentary customer base, financial resources
or market position, can profit more from owning your business
and are therefore willing to pay more.
3. Consider getting professional help. Unless you have a
background in taxes, legal issues and merger and acquisition
work, you will probably unknowingly make a multitude of costly
mistakes by trying to sell your business yourself. Those
mistakes may cost you substantially more than any fees paid for
competent professional assistance. Do some homework on various
alternatives. Become informed by attending seminars regarding
tax issues, estate planning, and so on. Ask your CPA or lawyer
to recommend "general knowledge" seminars that might assist your
learning curve.
Question: How do I legitimately minimize my tax obligations
when I sell my business?
Answer: Plan well in advance by reviewing your corporate
structure on an ongoing basis. This will enable you to maximize
the amount of proceeds you retain from your business's eventual
sale.
As one would expect, the tax rules make it difficult for any
quick fixes that give rise to immediate benefits. Consider
changes to structure now that may result in more favorable tax
treatment when the business is sold in five or ten years.
Start by getting up to speed on recent developments in the tax
code. Chances are the code is very different today than when you
bought or started your business. So sit down with your
professional advisor and review your current business structure
and its appropriateness for your business's eventual sale.
For example, if you are structured as a corporation, the
substantial difference to your after tax dollars on sale depends
on whether you proceed with an "asset" sale or a "stock" sale.
Selling the corporation's assets can result in proceeds being
taxed at the corporate level as well as the individual level
when the remaining proceeds are distributed to the stockholders.
However, if the stockholders sell their stock, it is likely that
capital gains provisions would apply. The difference this makes
to retained proceeds can be enormous.
Paying our share of taxes in the United States is an economic
reality of life. Yet after tax dollars in the sale of a
corporation can vary between 45 percent and 85 percent of the
sales price based solely on tax structuring issues. The earlier
you start planning for the sale of your business, the more
likely you will be to minimize tax obligations.
Question: When is the best time to sell your business?
Answer: The best time to sell your business is determined
through a careful consideration of the factors that can 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 inflation environment with plenty
of liquidity and a buoyant economy create an ideal scenario for
mergers and acquisitions. Clearly, we have enjoyed this scenario
in the United States over the last few years. As a consequence,
there has been a flurry of activity in corporate America as well
as small business America. Well-run, sound businesses are
selling relatively easily for nice multiples. Yet, as we all
know, the economy goes in cycles. If the sale of your business
is on the immediate horizon, then perhaps consideration should
be given to bring the "sell" decision forward in order to take
advantage of these robust conditions.
Internal Issues-Within our Control
A potential buyer is going to pay significantly more for a
business that demonstrates a consistent track record of growing
revenues and profitability. However, all too often a business is
allowed to stagnate or even decline because the owners have
taken their foot off the accelerator. Getting "burned out" and
other health issues are probably the most often cited reason for
a small business owner wanting to sell. This is understandable,
but also often controllable. Recognize the warning signs and
take whatever corrective action possible. Again, choosing to
sell for a good price while the business is buoyant is far
superior to forcing a sale because of health or other issues
that have impacted revenues and reduced the business's 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 don't have boards of directors
holding management accountable. However, sometimes it is prudent
to seek outside objective advice from respected confidantes or
professionals. These individuals bring a fresh perspective and
insight that will assist you in making good strategic decisions
for the future of your business.
Question: When a business is sold, what liabilities are the
buyer responsible for and which remain the obligation of the
seller?
Answer: In general, whether it is as an asset sale or a stock
sale, just remember that sellers are obligated to provide "lien
free" assets to the buyer. While all transactions are unique,
buyers will typically assume liability for the following:
leaseholds related to real estate, unless they are relocating
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 relays
to buyer a like amount of cash; and any other liabilities that
are agreed upon in writing.
Sellers will typically be obligated to pay off out of the sale
proceeds the following: lines of credit; installment debt and/or
leases related to vehicles, computers, equipment; all
obligations to employees up to the date of closing; all tax
related matters; and all other debt that has any claim against
any of the assets that are being transferred to the buyer.
There is another issue related to liabilities. The seller is
obligated to give the buyer strong "warranties and
representations" (guarantees) that there are no undisclosed or
unknown liabilities that might 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 has not been paid for by the seller. Obviously, all
buyers want and are entitled to protection from having to pay
for the same goods twice.
In summary, it is essential that both buyer and seller commit to
having everything in writing (i.e. no verbal agreements) and
that
About the author:
Steve fitzgerald writes about Southern
California business broker.This firm has specialized in
assisting owners of privately owned manufacturing, distribution
and service businesses in selling their businesses.
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