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Business Sale - What are the Considerations?
Question: I am starting to think about selling my business. What are the considerations?
Answer: The sale of an owner-managed business requires a willing buyer and seller who have negotiated a price at acceptable terms. As a willing seller, you need a buyer with whom you can negotiate a price to accomplish a sale. Generally, owner-managed businesses are sold to existing owners, competitors, or those in the same business from a different area. For those buyers the price will depend on how much they are willing to pay for the intangibles – the goodwill or know-how – of the business. A third-party not having knowledge of the goodwill or know-how of the business will pay the highest price for the business. However, the more indispensable the owners are to the conduct of the business, the less it will be worth in the hands of a third-party buyer. The business accountant may comment on value based on the balance sheet or gross revenue of the business. An appraiser may provide information about the value of a business based on the value of the balance sheet (something close to liquidation value), the replacement value, and comparable sales value. But neither the accountant nor the appraiser is a buyer. Any value information that is not in the form of a contract price from an able and willing buyer is opinion. Business brokers or middle-market investment bankers may find buyers, but the most probable buyer will be someone in the business, especially another owner. Absent a third-party buyer on the immediate horizon, cultivate other owners and enter into an owner's agreement with buy-sell provisions to guarantee an internal sale in the event of a contingency (death, disability, or withdrawal of an owner) or if no third-party buyer appears. Once an owner's agreement is in place, execute a plan to reduce the owners' managerial or other involvement with the business. Then start looking for a third-party buyer who will pay a higher price than that in the owners' buy-sell agreement.