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What To Expect When Selling Your Business

Building a successful business takes years of effort and attention. Having expended plenty of blood, sweat and tears over that time, business owners want to maximize their value when selling.

Many of the qualities that make a business owner successful will benefit a business seller, too. However, not many owners have much experience in selling a business. It is a long, complex process. Here are some of the major issues business owners should consider before, during and after a sale to secure the best value for their hard work.

Preparing For The Sale

No matter what sort of business you own or how big it is, determine why you are selling and what your priorities are. Do you want to hold out for an all-cash sale, which may be harder to successfully negotiate, or are you willing to consider an installment sale or taking equity in the acquiring company? Do you have a minimum price determined by factors other than the business’s value, such as your retirement plans? Do you want to preserve the jobs of family members or long-term employees? These and other considerations may seem obvious, but it is essential that you articulate them to yourself before you begin.

It is generally wise to hire outside help. Look for advisers who have relevant experience and vet them thoroughly. Make sure your experts have no potential conflicts of interest in a sale. Advisers you might consider hiring include an accountant, a tax expert, legal counsel, an appraiser or valuation expert, an investment banker and an intermediary or broker. Some people may fill more than one of these roles, and not every business sale will require all of them. Almost every business owner, however, will want at minimum an accountant, legal counsel and an intermediary on their side before and during a sale. The broker or intermediary can be the point person for identifying and working with potential buyers. The accountant (and the tax expert, if they aren’t the same person) will help you get your books in order and consider issues such as how to allocate the business’s purchase price most effectively and how to deal with federal, state and local tax concerns. Legal counsel will draft and review the documents and agreements necessary to complete the sale.

Be aware that many lawyers or other advisers will expect you to sign retainer agreements up front once you have decided to hire them. This protects both parties, but it can mean a substantial outlay of money at the beginning of the process. Also, if you have a business that is very small, you may have trouble finding a broker who is interested in your transaction. Many brokers who specialize in business sales look for businesses valued at several hundred thousand dollars or more. For very large businesses, an owner is more likely to hire an intermediary, who generally functions as a consultant and offers more sophisticated services.

Once you have hired a team, work with it to understand how the sales process will unfold before you start. The better you understand the process, the more purposeful you can be with your choices throughout. One key aspect to have in order early is your bookkeeping and records. Consider conducting a mock due diligence process to make sure you are thoroughly prepared for a prospective buyer’s examination. You may also want to obtain an objective third-party valuation. This will give you a realistic idea of your business’s worth and will help you decide on a realistic asking price.

Once a potential buyer has been identified, a tighter focus on compiling and presenting books and records is warranted, since the buyer will be able to specify the information for review and the preferred format. For example, many prospective buyers want to see books and records that have been prepared according to generally accepted accounting principles (GAAP), which most small businesses do not routinely use. The process of converting a business’s books to GAAP can be a significant undertaking, so if this is a concern, it should be addressed early in the process.

Finally, don’t neglect personal preparation for letting your business go. Create or revisit your personal financial plan. Try to work out several scenarios for the sale to see how it will affect your short-term and long-term goals. For some business owners, especially founders, letting go of a business can also have an emotional component. Know what you plan to do next and accept that the new owners will change your business once you are gone. Both you and your business will begin new chapters after the sale closes.

The Sale

The process of selling a business can be protracted. Once you begin, prepare yourself for the sale to take six to 12 months, though, obviously, this timeline can vary. To make your business more attractive, consider improving assets, cleaning up potential liabilities and generally taking care to make your business look its best. Much as you might repaint your house before you sell it, you can take steps to spruce up your business, too. Consider the timing of the sale; try to avoid selling right before a lease or key contract expires so that a buyer doesn’t face the prospect of renegotiating it as soon as he or she arrives.

Ensure that your business continues to operate effectively throughout the sale process. The sale can occupy a large chunk of your attention if you are not careful. Be sure to manage your time wisely and do not neglect day-to-day operations. Keeping performance high will not only make the business more attractive from without, but also will keep morale and dedication high within your staff. This is another reason to hire outside consultants, as spreading yourself too thin may hurt the business and ultimately reduce the price you can obtain.

Consider carefully who in the business needs to know that your company is for sale. You have a duty to any partners or co-owners, as well as to shareholders, which may dictate a certain level of disclosure. However, widespread knowledge that the business is for sale can create anxiety among employees, customers and vendors. This, too, can reduce the ultimate selling price.

Once you or your broker has identified a prospective buyer, it makes sense to prequalify the candidate to make sure nobody’s time is wasted. During the prequalification process, you will also want to secure confidentiality or nondisclosure agreements. Serious buyers should not have problems agreeing to such terms; if they resist, treat it as a red flag. (The same holds true for your team of advisers, who should also formally agree not to disclose sensitive information about the business.)

The prospective buyer should offer a letter of intent, which is a nonbinding offer outlining all the major terms of the proposed transaction, including the total purchase price, the structure and all other important conditions. The letter of intent serves as a basis for you, your buyer and your respective lawyers to negotiate terms and draft the final legal documents. Be sure to have a good idea of which terms you are willing to compromise on and which are deal breakers. As a rule, the more thorough and specific you can be during the early stages of a deal, the better.

A key decision for many business owners will be whether they want to structure the sale as an asset or a stock deal. Generally, buyers prefer to purchase assets because they can obtain a step-up in basis, resulting in enhanced tax deductions in the future. Buyers also limit their own risk in an asset sale. Sellers generally benefit more from a stock sale, if one is possible, because they obtain clear, long-term capital gains treatment by doing so. If the seller holds stock in a C corporation, the seller may have no choice but to hold out for a stock sale to avoid double taxation. In other cases, an asset sale will tend to attract more buyers, but a seller should not hesitate to ask for a higher price accordingly, given the benefits to the buyer inherent in an asset sale. In many cases, the structure of the business dictates the tax treatment of the sale. For example, the sale of a sole proprietorship is always treated as an asset sale.

While a stock sale is relatively straightforward, an asset sale is treated as a sale of all business assets, with a portion of the purchase price allocated to each asset. Allocating the purchase price among assets is often a key part of the negotiation process, as buyers and sellers may want certain assets treated differently to receive the most favorable tax treatment. For example, buyers might want more of the purchase price allocated to hard assets, which they can depreciate, as opposed to intangible assets or goodwill, which generally must be expensed over longer periods of time. Sellers want the opposite, because the sale of hard assets often results in ordinary income tax treatment, whereas intangibles and goodwill can often receive capital gains treatment. Both parties must agree on the final allocation, as the buyer and seller will both disclose this in their tax filings with the Internal Revenue Service.

You should also address issues of transition as part of the selling process. Will you stay on for any length of time to ease the transition? If so, you will need to negotiate an employment agreement explicitly outlining the terms of such work. If not, how will you hand over the business and when? At what point will key employees be notified?

Follow best practices even in the small details as you proceed through the negotiation and the sale. Keep good, clear records and follow any directions from your lawyer carefully. Meeting exacting ethical standards is the right thing to do, and it also limits your liability. As a seller, not only do you have duties to your partners or shareholders, but you also have legal disclosure obligations to potential buyers. Make sure there is no question that you have met all such obligations fully.

After The Sale

In most business sales, your involvement with the business does not end on the day it’s sold. Founders and key executives often receive employment contracts to stay on and help the business transition to the new ownership. Depending on how the sale was negotiated, this can also include additional incentive payments, or “earn-outs,” which are contingent on how the business performs during the first few years after the sale. Earn-outs are common when founders and key executives stay on through the transition, providing them with incentives to keep the business running smoothly. Most business sale contracts include noncompete provisions, under which an owner’s ability to continue to do business in a certain geographic area or industry can be limited.

Remember that Uncle Sam will take a healthy share of the business sale proceeds. Work with your accountant to prepare all necessary tax filings following the sale. The tax impact could extend over multiple years if you receive payments under an installment sale.

Selling a business is complex, and this article discusses only some of the legal and financial considerations involved. Do not hesitate to bring in a team with experience and to take the time you need to educate yourself before you proceed. Most business owners only sell a business once. It is important to get it right.

Which Type of Business Owner Are You?

Over my 12 years of being in business, and speaking with many, many business owners over that time, I’ve discovered that when it comes to creating a strategic business and marketing plan for their business, these business owners typically fall into one of these four camps:

The Perfectionist Camp. These business owners plan everything in minute detail and won’t dive in until everything is perfect. They constantly tweak, change, and revisit their plan. The problem with this approach is that it will never be perfect. Your business plan won’t ever be perfect, so you may as well just start now and get going. You can always tweak/change/update as you go along.

The BSO Camp. These business owners are constantly distracted by Bright Shiny Object syndrome, never finishing one project before moving on to the next. The problem with this approach to running your business is that you never get anything done. Nothing ever gets implemented. No results (or very lackluster results) are ever seen. So there’s no real business growth and everything becomes confusing and overwhelming.

The Boxing-Myself-In Camp. Then there’s the business owner who won’t create a business plan because, if they do, they feel they’ll be boxing themselves in and missing out on opportunities that arise. The problem with this approach is that by not having a business you don’t have any real roadmap for growing your business; nothing is done in a very strategic way. And the irony is, you do end up missing out on opportunities because you don’t have a point of reference for anything that you do.

The Don’t Know What To Do Camp. And finally there’s the business owner who simply doesn’t know what to do. They’re very confused by all the different elements of online business management and really don’t know where to start when it comes to running to their business. They don’t know what their starting point should be. Because they don’t know where to start, it’s really hard for them to create a strategic business and marketing plan that is going to work for them.

Despite all of these different scenarios there is one thing in common. Without a strategic business and marketing plan in place, it’s going to be very difficult to grow your business and sustain it over the long-term. Opportunities will be missed. Revenues will be lost. And you’ll have no benchmark with which to gauge your success by.

This is why it’s so important you spend a little time planning out what you want for your business. And I recommend to business owners who have never created a plan before that the first start with a 90-day business plan. Even by creating a plan that focus on a shorter timeframe, it will provide them with the much-needed structure in which to grow their business.

What Are Local Business Directories?

Local search is the use of modified internet search engines that requires the people to submit searches against an arranged database of local business lists. Typical local searches include not only information about “what” the visitor is searching for but also “where” the information lies.

Local business directories are mainly search engines which hold all the businesses that are owned by people in a certain area and are categorized into different types. Business owners who want to promote their businesses themselves enter the specific information required for their businesses to be advertised online. It is best to form a website so that more information is provided to the consumer about the products. In that case the business directories rate the website from a different perspective. Other than this, all they have to do is find the local business directory and complete the process that is required so the directory can categorize the business according to the need of the consumer.

Nowadays, businesses benefit from this opportunity as they not only get to advertise their business in the outside market but also online with the help of online local business directories. The brand, Marks and Spencer is a well recognized business in the world but before that it had to make its way to the top and for that advertising was really important, so no matter what the size or brand be, the business is supposed to maintain an attractive advertisement program, local business directories being the easiest way.

Due to the advanced technology, people expect anything that they search for to be found in a matter of seconds, the same concept applies here people do not want to go out looking for certain businesses instead they want their specific business which they search for to pop up in the blink of an eye so that its less time consuming. Local business directories are found to be the most suitable for this job. Although some business owners may be impelled to put their businesses at local business directories due to them being unsuccessful but after they make this decision they benefit a lot from doing this one act of wisdom.

Online business directories are used as the business owners find a lot of benefits in using that source. Internet is spread worldwide and is used on a large scale so the business owners find nothing more effective and inexpensive as the internet to promote their service or product. Then again internet provides a wider range of visibility which eventually leads to more sales and less loss which makes the owner comfortable. Not only these but the online directories are also there to benefit the small and medium sized businesses so it roves advantageous to all.

Most of all these business directories are an inexpensive and effective way to increase your time of being online and customer footfall, now mostly the people who visit the site directly are known as direct visitors and these visitors are the most targeted and ready to buy anything type people, they are basically known as WEB TRAFFIC.

There are some tips which help in approving good business directories, they may be:

  • Search rankings and Google age ranking will be good.
  • User friendly.
  • It must have user guidelines and terms of use.
  • Manually approved.
  • Proper internal link arrangement.

One of your greatest motives should be to make your business directory strong and better from the others. The company names and details should be provided, business profiles should be mentioned with business listings, company listings should be provided and company details found in mobile and GPS systems should be given.

In my opinion, internet is growing every year. It is becoming better and better with new material which is authorized and experimented so no mistake is to be expected, it is penetrating the world and it has become a very important tool in the world of business and marketing. Business directories are a very healthy, informative and helpful business tool if handled and worked on carefully and properly.