December 12, 2021
Making the decision to wind up your business is not easy. Perhaps you contend your small business is viable, it only needs the right buyer. This is likely true, but it depends on many factors, including market volatility, geographic location, and price. Are you retiring outright, or would you want to retain market shares or part-ownership? Would a bulk sales transfer be necessary? Are you selling property as well? All these factors deserve consideration before pursuing a buyer. In this installment of our blog, our authors will provide some tips for determining if a business sale is advantageous.
Let’s say that a potential seller owns a chain of successful bars and restaurants, and he is considering a complete sale of all locations to an eager buyer, also in the service industry. The buyer will want to know what the seller’s profit margin is, how much inventory he has on hand, what his operating expenses are, and what the forecasted expected rate of return will be for this year, and perhaps five or 10 years out. Buyers want to know what your adjusted net income is and whether cash flow has been steady or volatile. This is especially true in the service industry, where owners might not realize their investment for several years. Having actual numbers to rely on, conducting a full accounting of your business’ financial health and forecasting future returns can help make your business more attractive, and in turn garner a higher sale price.
If you want to sell your business and the property outright, are you currently leasing it to a tenant? If you are leasing to one or multiple tenants, you will want to inform them of a potential sale before it is finalized, especially if they will need to vacate the premises. A sale can fall through if a tenant holds over or if the potential buyer has other intentions for the property space. A seller may also want to help a potential buyer with financing. Getting the business pre-qualified for a purchase loan can expedite the sale process and relieve the buyer of difficulty when seeking a loan commitment. The seller can also provide assurances to the buyer that the business is in good standing and credit worthy.
Contemplating the sale of your business is a big step. Listing the business might seem straight-forward until the offers do not come in as anticipated. Meeting with a corporate and business law attorney before moving forward with a sale can help simplify outstanding issues and garner a better price and deal for your business as you move forward. In our next installment, we will discuss additional fine points of a business sale. If you have any questions about corporate financing or sales, contact our Silicon Valley corporate lawyers at SAC Attorneys, LLP.