Guide To Selling a Business

Unless you are experienced in the buy/sell process, you will need to work with intermediaries who are versed in the process. The kinds of experts you will need are discussed below:

Business Broker

If you plan to use a business broker, choose one at this stage of the process. A good business broker will be able to advise you on most aspects of the sale including, value, marketing the business, potential buyers, etc. You may also find that a broker has a ready prospect for your business. However, be careful here; a favorite business broker ploy is to claim a buyer is waiting who can't wait to buy your firm. Once you have signed a listing agreement, that hot prospect mysteriously disappears or turns out to be less interested than represented.

The pros and cons of working with brokers are discussed in section IV.

Accountant

At this point, a meeting with your CPA is also advised. An accountant will be in a position to explain the tax consequences of the sale and some of the possible alternatives for structuring a deal that would impact on the tax consequences.

He or she will also need to produce up-to-date financial statements. Make it clear that the financials are to be produced for selling purposes and should be conceived in that framework-- to put your business in the best possible light. This is, of course, different than producing tax return documents with the goal of reducing taxes. You are not asking your accountant to vary from generally accepted accounting principles. However, your business tax returns are produced with the goal of keeping taxes as low as is legitimately possible. Many businesses produce one set of financials for tax purposes and another for other purposes (such as for attracting capital) every year. There is nothing illegal or unethical about this practice. Talk with your accountant about modifications such as producing statements on the accrual rather than cash basis and other possible modifications that would strengthen your financial statements without arousing suspicion or crossing the line of acceptable accounting practices.

If you are working with a broker the broker will often help you and your accountant recast the financial statements. Recasting adjusts the financial statements to reflect how the business might have performed if it was not run by the owner. Examples of items that may be recast include:

Related party transactions: If the owner is doing business with a related party the transactions may not occur at market rates. For example, a business owner often owns the real estate that a company rents. The business may be paying either above or below market rate rent on the property.

Indirect owner compensation: The owner may do more traveling and entertaining than needed for the business. The business may pay for a fancy car, cell phone service, a corporate jet, and a variety of other perks.

Non-market rate compensation: A business that is showing a loss on its financial statement but paying its owner $1,000,000 to do a job that a $100,000/year manager could do would have $900,000 added back to the recast financial statements.

Be aware that to your accountant, the sale of your business is not positive news. He or she will be losing a client. Despite his best efforts, it may be difficult not to let his advice be clouded by his own economic interests.

Accounting issues are further discussed in section XII.

Lawyer

Some sellers prefer to talk to their lawyers at this early stage. A lawyer can outline the steps you will need to protect yourself and to make sure the sale precedes smoothly. Ask your lawyer about the Bulk Sales Act and whether it applies in your case. If it does, prepare to comply with it now because there is a waiting period that can delay a closing. Also ask your lawyer about the transferability of leases and/or other agreements that a buyer will need to know about.

Your lawyer will play a key role later in the process when it is time to draw a purchase and sales agreement and to close the deal. Do not sign an offer to purchase or a purchase and sale agreement before checking with your lawyer.

Legal issues are further discussed in section XIII.

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