THINKING ABOUT SELLING YOUR BUSINESS OR A LETTING GO OF A PORTION OF IT? |
Selling a business or downsizing it can be a soul searching process. It can include everything from truly understanding why you are looking to sell or change the current business plan, to determining the valuation of what you are selling, to finding the right person to partner with or to sell to. Along the way, there are plenty of questions almost all business owners have.
A CHECK LIST OF THINGS TO DO:
- Evaluate the value of what you are selling. Check out this website on BUSINESS VALUATION
- Enhance the value of your company while you are still in the driver’s seat and create of list of the things you want to enhance and the cost behind those enhancements
- Create an avatar of the type of person you think would want to buy/partner on your business and build a sales one sheet that would attract THAT buyer/partner
- Create a list of any inventory you want to sell as well as any items in the space
- Create a list of intangible items -- email list, the ability to build off your branding and past marketing efforts (see below for more detail on this!)
- Create a timeline of when the above items on the list will be accomplished and how you will hold yourself accountable in accomplishing those goals
A CHECK LIST OF THINGS TO DO:
- Evaluate the value of what you are selling. Check out this website on BUSINESS VALUATION
- Enhance the value of your company while you are still in the driver’s seat and create of list of the things you want to enhance and the cost behind those enhancements
- Create an avatar of the type of person you think would want to buy/partner on your business and build a sales one sheet that would attract THAT buyer/partner
- Create a list of any inventory you want to sell as well as any items in the space
- Create a list of intangible items -- email list, the ability to build off your branding and past marketing efforts (see below for more detail on this!)
- Create a timeline of when the above items on the list will be accomplished and how you will hold yourself accountable in accomplishing those goals
MAJOR DOCUMENTS TO HAVE ON-HAND
Sooner or later in the business sale process you’ll need the following materials.
Sooner or later in the business sale process you’ll need the following materials.
- Federal tax returns for the past three years (corporate or Schedule C)
- Income statements for YTD and the past three years
- Balance sheets for the past three years
- Statement of seller’s discretionary earnings for most recently completed year
- Financial ratios and trends
- Accounts receivable aging list
- Accounts payable list
- Inventory list including value
- Current building lease
- Franchise agreement, if applicable
- Fixtures, furnishings, and equipment list including fair market values
- Asset depreciation schedule from most recent tax return
- Current copies of equipment and facility maintenance agreements
- Current employee, customer, vendor, and distributor contracts or agreements
- Current business licenses, certifications, and registrations
- Copies of patents and trademark registrations, if any
- Copies of outstanding loan agreements
- List of existing liens
- Product or service price list
- Employee records showing staff, hire dates, salaries, pension records, employee benefit plan outline
- Organization chart
- Business formation documents
- Current client list
- Current list of major suppliers and distributors
- Business plan
- Marketing plan
- Employment policy manual
- Business procedures manual
- Photos of business building, work areas, and equipment
BUILDING YOUR BUSINESS SALE TEAM
Making the decision about who to bring onto your business sale team isn’t clear-cut. You need to bring aboard some professionals to assist you — from accountants to attorneys to business sale brokers to appraisers.
No one, no matter how small the deal, should sell a business without obtaining financial and tax advice. At the very least, you want an accountant to help you assemble and present your business financial records and to help structure your sale with the intent of managing taxes and facilitating buyer decisions. You may also want to involve an attorney, particularly if your business has established a relationship with a lawyer whom you trust to deliver good business and legal advice, or if you plan to sell your business on your own without a broker’s help.
Making the decision about who to bring onto your business sale team isn’t clear-cut. You need to bring aboard some professionals to assist you — from accountants to attorneys to business sale brokers to appraisers.
- Accountant
- Attorney
- Business broker (a broker can also provide advice on how to value your business. In return, you’ll pay a fee, which is usually about 10 percent of your sale price)
- Appraiser or valuation expert (before obtaining an appraisal, talk with your broker if you’re using one--also talk with your accountant. It may well be that between these two resources, you can arrive at a good figure from which to start seller negotiations).
No one, no matter how small the deal, should sell a business without obtaining financial and tax advice. At the very least, you want an accountant to help you assemble and present your business financial records and to help structure your sale with the intent of managing taxes and facilitating buyer decisions. You may also want to involve an attorney, particularly if your business has established a relationship with a lawyer whom you trust to deliver good business and legal advice, or if you plan to sell your business on your own without a broker’s help.
SELLING YOUR BUSINESS: WHAT ARE TANGIBLE AND INTANGIBLE ASSETS?
Getting ready to sell your business? You’ll need to separate your tangible and intangible assets because at sale time (or in the sale contract), the Internal Revenue Service requires you to break down the price into asset categories, which are taxed at varying rates.
To value your business assets, you create an inventory of all the assets of your business and assign a value to each based on what it would cost to create or replace that asset in similar condition.
TANGIBLE ASSETS
Tangible assets include business furnishings, fixtures, equipment, leasehold improvements, inventory, real estate, automobiles, and other major physical assets.
Tangible assets are probably the easiest part of your business to value, because by their very definition, tangible assets are ones you can see and touch. You can often even find comparable items on the market (through eBay and other online shopping sites, through equipment distributors, and through other used-equipment outlets) to help you determine current market values. When valuing your tangible assets, also talk with your accountant, who can help you figure the depreciated value of items you’ve held for multiple years.
INTANGIBLE ASSETS
In businesses with well-known names, products, and reputations, up to half the business sale price often covers the purchase of intangible assets — things buyers can’t hold in their hands.
Intangible assets fall into two general categories:
Intellectual property rights assets, including trademarks, patents, licensing agreements, and trade secrets.
Other intangible assets, including business name and reputation, processes, strategies, and general know-how, which together contribute to business value over and above the value of tangible assets. These intangible assets compose what’s called the goodwill of your business.
Goodwill assets include:
Getting ready to sell your business? You’ll need to separate your tangible and intangible assets because at sale time (or in the sale contract), the Internal Revenue Service requires you to break down the price into asset categories, which are taxed at varying rates.
To value your business assets, you create an inventory of all the assets of your business and assign a value to each based on what it would cost to create or replace that asset in similar condition.
TANGIBLE ASSETS
Tangible assets include business furnishings, fixtures, equipment, leasehold improvements, inventory, real estate, automobiles, and other major physical assets.
Tangible assets are probably the easiest part of your business to value, because by their very definition, tangible assets are ones you can see and touch. You can often even find comparable items on the market (through eBay and other online shopping sites, through equipment distributors, and through other used-equipment outlets) to help you determine current market values. When valuing your tangible assets, also talk with your accountant, who can help you figure the depreciated value of items you’ve held for multiple years.
INTANGIBLE ASSETS
In businesses with well-known names, products, and reputations, up to half the business sale price often covers the purchase of intangible assets — things buyers can’t hold in their hands.
Intangible assets fall into two general categories:
Intellectual property rights assets, including trademarks, patents, licensing agreements, and trade secrets.
Other intangible assets, including business name and reputation, processes, strategies, and general know-how, which together contribute to business value over and above the value of tangible assets. These intangible assets compose what’s called the goodwill of your business.
Goodwill assets include:
- Your business name and brand identity
- A trained workforce
- Loyal clientele
- Strong and durable supplier and distribution networks
- Phone numbers and websites
- Proprietary technology, systems, and processes
- Brand equity, which is the value of the competitive advantage of your name and reputation in the minds of consumers and business and industry partners.
