To sell your business, you need help
negotiating the deal and creating a sales agreement.
Thinking of selling? Consider these practical steps for making
the process go smoothly.
1. Determine a Realistic Price Range
If you price your business too high, you'll scare away buyers. If
you price it too low, you'll lose out. To figure out a range that's
realistic, you can use one of several methods -- and then maybe
blend the results. For example, you can base the price on the value
of the business's assets, and add in a sum for the goodwill the
business has developed. Or you can see how much comparable
businesses in your industry and locale have recently sold for. Or
you can use an industry formula (for example, a value based on the
number of units sold annually or a multiple of average earnings).
2. Understand the Tax Consequences
Taxes can take a huge bite out of the money you receive for your
business. It pays to know just how big that tax bite will be -- and
to try to lower it, most likely with help from a CPA or other tax
expert.
Your tax bill will be influenced by two key factors: How your
business is legally set up and -- in the case of a corporation or
LLC -- whether you're selling the assets or the entity. Sales of all
sole proprietorships and almost all partnerships are asset sales. So
are the sales of many corporations and LLCs
3. Look Good for a Sale
The getting-ready process includes not only sprucing up your
premises, but getting your numbers in good shape. Consider recasting
your tax-return numbers for prospective buyers. This can involve,
for example, adding back to your profits discretionary expenses such
as medical insurance for you and your family, travel and
entertainment, business vehicles, memberships and subscriptions, and
salaries and bonuses paid to family members.
In recasting your tax numbers, you're not deceiving either the
IRS or prospective buyers. You're simply pointing out that the buyer
may prefer not to spend money on some of these items in the future.
4. Seek Potential Buyers
If your business is well known, word that it's for sale may be
enough. Or, possibly someone close to you -- an employee, a friend,
or a customer -- could be a prospect. But more likely, you'll need
to reach out to a bigger pool. This often includes putting ads in
newspapers and trade publications, and on business-sale websites.
You may want to engage a business broker to reach more buyers, or
to keep your plans from going too public too fast.
5. Negotiate Your Deal
In working out the terms of the sale, some key issues include
whether you'll sell the business entity or just its assets, what
assets (like a truck) you want to keep, and how the buyer will pay
you (usually, a down payment plus installments).
6. Sign a Sales Agreement
You'll need to put the deal in writing. Among other things, your
agreement should list and value the assets the buyer is purchasing,
list any contracts the buyer is assuming, and include protections
that assure you'll get paid the full sale price. If you attempt the
first draft of the sales agreement yourself, have it reviewed by a
business lawyer to make sure you've covered all the bases.
7. Plan for the Closing
The closing is the meeting at which you transfer the business to
the buyer. To reduce last-minute hassles, make a checklist of all
the papers you and the buyer will need to bring -- everything from
the documents and money associated with the transfer to your alarm
codes, keys, and customer lists.
8. File Paperwork With the IRS
After the sale, you and the buyer need to jointly complete IRS
Form 8594, Asset Acquisition Statement and file it with your
tax returns for the year of sale.
