Gilbert, J S & Associates, Ltd.

Buying & Selling a Business

100s of thousands of U.S. businesses change ownership annually. Most are small and mid-sized businesses, like retail stores, beauty salons, quick-print shops, restaurants, tax preparation services, landscapers, electrical contracting firms, and modest manufacturing operations. If you’re thinking about buying or selling a business and want to get the best deal possible, expect to do a lot of planning and preparation.

Selling a Business

No matter what kind of business you own — a professional service company, a neighborhood restaurant, or one of the many home-based businessess — there’s likely to be someone interested in acquiring it. But finding the right buyer and selling the business on favorable terms will require both planning and hard work.

Whether or not they are thinking about selling, all business owners should know what their companies are worth. They should also be thinking about an exit strategy. Here we’ve compiled information that will help business owners with the mechanics and strategies of buying, selling and valuing their businesses.

Your first step is considering whether you’re ready to sell. Other steps will include understanding the sales process, preparing your company for sale, setting a price, seeking potential buyers, negotiating and preparing a sales agreement and other documents, and closing the deal and paying the taxes.

Getting your company ready to sell means sprucing up operations and mimicking the professional standards of public companies–first-class financial statements, budgets, business plans, and management that’s not dependent on one person. At the very least, running your business as if you were preparing to sell it will improve your management practices and increase the value of your company. And should an offer come through that you can’t refuse, being prepared will put you in a great position to close a deal quickly.

Buying a Business

If you’re planning to buy a business, you also have many of the same factors to consider. Additionally, you need to determine whether owning a business is right for you or for your lifestyle, what the potential for success in the field you’ve chosen is, whether this is the right or a viable business and the risks involved. Owning a business can mean that you have signed on for longer hours and more worries than you’ve ever experienced as an employee of someone else, but if you succeed, the financial and personal rewards are yours to savor. And of course, if you own your own business, no one can fire you.

Other things to consider include whether to buy a franchise or an independent business, how to find a business for sale, how to know whether the asking price is reasonable, and how to research the business’s history and finances (what lawyers and CPA’s call doing “due diligence”).

So now that you have decided to purchase an existing business. Regardless of whether the deal is structured as an asset transaction, a stock transaction or a merger, make sure you know what you are getting into by requiring detailed information from the seller regarding its business operations and finances. The following is a summary checklist of information and documents you should review.

  • Organization and Good Standing.
  • Financial Information.
  • Physical Assets.
  • Real Estate.
  • Intellectual Property.
  • Employees and Employee Benefits.
  • Licenses and Permits.
  • Environmental Issues.
  • Existing Contracts
  • Taxes
  • Product of Service Lines
  • Customer Information
  • Vender Information
  • Litigation
  • Professionals
  • Insurance Coverage
  • Telephone, Fax numbers, Web Address and E-Mail Accounts
  • Public Opinion

Structuring the Purchase or Sale

The primary function of an attorney is to prepare the purchase and sale documents as negotiated by the parties and assist in the negotiation of terms. It should include reasonable and balanced protections for both parties. Experience and reputation are important criteria when selecting an attorney. The attorney chosen should have experience handling similar transactions. It may make sense to choose one attorney to represent both buyer and seller. This avoids the adversarial relationship that opposing attorneys often adopt and improves the odds of successfully completing the transaction. It also eliminates some of the emotion in the negotiation process, improves the lines of communication between the parties, expedites completion of the deal and is less expensive.

Tax and other consequences of the structure of a transaction have an important effect on the overall value of the transaction to the principals. Each type of structure carries with it different tax consequences for the buyer and seller. The type of corporation owned by the seller (regular corporation or S corporation), the size and date of the transaction, and the type of consideration paid may all have a bearing on the tax consequences. Since tax law is constantly changing, it is important to seek legal and tax advice in determining the best way to structure the purchase or sale.

Structuring the purchase or sale of a business properly is just on in many critical steps in the process of buying or selling a business.

Our competent staff has experience to guide you through the acquisition/disposition process by addressing such issues as cash flow analysis and tax considerations.