Sale of a Business Explained
Please ensure you read and understand the disclaimer before reading this article. Always consult a qualified lawyer for your legal advice.
If you are looking to sell your business, it’s important that you understand the law regarding the sale of a business. Mistakes made in this area can cost you a considerable amount and even cause penalties, fines or tax complications. There are a few steps that you can follow to make the process of selling your business go much smoother.
For example, before you sell, make plans and get the information you need to do it correctly.
Start by knowing why you want to sell your business. People sell their businesses for many different reasons. Perhaps you no longer feel like you are benefiting from the business or maybe you have just gotten tired of dealing with all the stress and work involved in running your own business. Sometimes, the owner becomes too ill to continue running the business and other family members feel like the best thing to do is to sell.
In some instances, the owner just decides its time to retire and relax for awhile. It is important that you know why you want to sell the business. This way you will know that you are not making a decision this huge on a whim. It will also give you the opportunity to discover other options if selling is not what you really want to do.
1. Get Prepared For the Sale
You need to get prepared for the sale in advance. No one is going to be interested in your business unless you make it appealing. You want to make sure you get the best return possible and to do this you must make the business attractive. Consider what you would be searching for if you were the one looking for a business to buy.
The first thing that a potential buyer will want to know is if the business is making a good profit, breaking even or losing money. Of course, they will be more attracted to a business that is profitable. For this reason, a vital part of being prepared includes making sure all the financial records for your business are available, in order and up-to-date. This will prove to the buyer that the business is running smoothly.
Any documents or contracts that are associated with the business need to also be in order and updated. The potential buyer needs to know exactly what they will be dealing with and see that you have everything organized.
If you were considering buying a business wouldn’t you want to know a little about its history? Take some time to have details about the business available for any potential buyer. This would include the daily routines of the employees, the competition you have, how and when it was established and the opportunities it possess.
Doing up a quick SWOT (strengths, weaknesses, opportunities, threats) analysis of your own business can be useful here.
2. Be Clear About What You Are Selling
Be clear about what you are selling when you decide to put your business up for sale. It may sound obvious because you automatically assume you are simply transferring the ownership of the property and assets over to the buyer. However, it can be a lot more complicated than it seems and it’s important to be as clear and concise as possible.
Depending on the type of business you have you may also be selling the debts, contracts or intellectual property of the business. You are selling the legal responsibilities as well. If you own a larger company, then you may have share holders to be concerned with and there are other things to consider such as the name of the business, its reputation, inventory, equipment and lease agreement or ownership of land.
3. Price Your Business Correctly
One of the hardest parts of selling your business is putting an accurate and fair price tag on it. How do you go about determining what to sell your business for? The first thing that you will need to consider is the worth of the assets minus the cost of all liabilities. This will be your starting point.
Next, you need to take into account the trademark and name of the company, patents and designs, age, copyrights, customers and employees. All of these things affect the value of your business. Another important thing to consider is the market position of your company and the time of year that you sell will also affect its value.
You can also:
- Check to see what similar businesses have sold for in your local area or region.
- Check to see if there is an appropriate number of years x current gross profit for a rule of thumb indication of where you should be pricing the business. The number of years which you would select will vary and can depend on things like age of business, type of business, size of business, online vs offline business and many more factors.
Many different things affect the sale of a business and the more informed and prepared you are the easier and smoother the sale will go. Make sure all records are updated and in order.
It is advisable to seek legal counsel to help make the experience a good one in which you can get the most from your sale and avoid costly mistakes.
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