Business For Sale- The Team

Selling a business involves a host of legal and financial procedures that need to be followed, for which it is best to assemble a team of professionals. You may be confident of managing the sale by yourself, but using professionals will save you precious time that you can spend keeping your business running. The services of the team will naturally cost you, but it will be worth it for the efficiency they bring to the process. They will probably have had experience selling several other businesses of different sizes, and so know exactly what procedures need to be followed in your case. A misstep during a sale could leave you facing problems with everyone from your purchaser to the government.

You don’t necessarily need a large team to handle the sale of your business, but at the very minimum you will need to consult with an accountant and a lawyer. Your lawyer and accountant will have to work together to ensure that you get the best possible deal, and meet all the legal and financial obligations of the sale.

The larger your business, the more complicated the procedures to be followed will be. The complete team that you can assemble to handle the sale will have the following members, who will handle specific aspects of the sale.

1. Accountant

However small your business may be, it is imperative that you use an accountant during the sale. You probably have an accountant whose services you’ve used to handle tax returns and financial statements. She is probably familiar with the nature of your business, and will be well-equipped to handle the sale.

On the other hand you have the option of hiring another accountant who may not know as much about your company, but is more experienced in handling sales and purchases of businesses.

The role of the accountant during the sale is to:

a) prepare financial statements
Before you sell, you need to have all your papers in order, including all financial statements dating back at least three years. The accountant will put all the documents together and enable the appraiser to value your business. In some cases, your accountant may also undertake the appraisal of your business. Your financial statements should be audited, a task that your accountant can perform if she is a CPA; otherwise she should be able to recommend someone who can do the job.

b) advise you on the sale
Your accountant will tell you what a potential buyer may find lacking in your company, and advise you on how to present your company well to potential buyers. She will compare the performance of your business with the performance of similar businesses, and give you a reasonable idea of the price range into which you can expect the sale to fall.

c) work with your lawyer
The legal and financial aspects of a sale are inextricably linked together. Every financial decision you make will be accompanied by legal implications and vice versa. Thus it is important that your accountant constantly communicates with your lawyer to ensure that all your obligations are being met. Further each should be clear on what part of the deal so that they don’t step on each other’s toes, or end up doing the same thing twice and doubling the cost to you.

One way to ensure a smooth relationship between you lawyer and your accountant is to hire a lawyer that your accountant already has a working relationship with. This will lessen the burden on you to constantly check whether they are coordinating well with each other.

2. Lawyer

If you have a lawyer that you’ve used regularly in the running of your business, she may be the best person to consult when the time comes to sell. An intimate knowledge of your company will enable her to put all the necessary legal documents together and advise you on all aspects of the sale. However there is also a reason not to use the services of your regular lawyer. The sale of your business will mean one less client for her, and perhaps even unwittingly she may not do everything possible to aid the process.

If you suspect this might pose a problem, you can approach a mergers and acquisitions (M&A)expert. M&A lawyers are not cheap, but if you do the math you will be able to figure out whether the cost of an expensive lawyer will be paid off in the price that you obtain for your business.

The role of the lawyer during the sale is to:

a) draw up the sales contract
This is your lawyer’s most important task. She will have to evaluate the tax obligations of the sale, and advise you on the kind of sale that would suit you. The tax consequences are different depending on the kind of sale it is. A wrongly-worded sales contract could result in the buyer finding a loophole and being freed from basic payment obligations. Worse, you could be faced with lawsuits, and even find yourself in the IRS’s bad books. Thus the sales contract is the document to which your lawyer will have to devote the most attention.

b) approve all the legal aspects of the deal
All the other documentation related to the deal should at least be looked over by your lawyer, even if she doesn’t actually draw it up. This includes agreements with your employees, customers, shareholders, creditors etc.

c) work with you’re accountant
Your lawyer and accountant should communicate with each other continuously during the deal, so that you meet all your legal and financial obligations, and get the best possible deal. As far as negotiating the deal goes, you will have to decide with your lawyer whose interests she will represent. The interests of buyer and seller are obviously conflicting so one lawyer should not represent both. Sometimes the interests of the seller and the employees of the company may differ as well. But a lawyer may still agree to represent both. This is a healthy arrangement if you want to consider the interests of your employees during the sale, even if to some extent, it affects the benefits that you receive.

Other Professionals

3. Appraiser

If your business is not a large one, the job of valuing it may be done by the accountant. But if it is a fairly large company with a considerable asset base, and you want a very accurate valuation, you should hire an appraiser. That way you will be able to justify your asking price to any potential buyers. Having a professional appraisal also helps you answer questions that the IRS might ask, particularly if you’re selling to a relative or a close friend. Ultimately, you want a good price for your business, but at the same time also to avoid overvaluing it and dissuading potential buyers from approaching you.

4. Tax Expert

Evaluating the tax consequences of your sale is something that an accountant can handle if your business is a fairly small one. But if you want to explore the various options open to you, and consider the tax implications of each one, hire a tax expert.

The amount of tax you will have to pay varies depending on how you structure the sale so you can save a lot of money if you plan well. Tax rules keep changing, so you need someone whose job it is to keep abreast of developments.

If you do decide to use a tax expert, you need to plan well in advance, much before you advertise the sale. By the time you are approached by the first buyer, you should be perfectly clear how you wish to structure the sale. There are several options that you can choose from, such as an asset sale, stock sale and tax-free merger. Tax rules change with geography as well, so your tax expert needs to be very familiar with the variations in tax implications through different states.

5. Banker/Financier

If your buyer chooses to finance the deal through a banker or a financier, it may be necessary for you to communicate with them, so that they know how the deal is structured, what payment methods have been agreed upon, what the future of the business is etc. Negotiating with the third party who is financing the deal will be up to the buyer, but your cooperation with them will greatly speed up the process of financing the sale.

6. Business Broker

Many small business owners handle the sale of their businesses without business brokers. They find their buyers, negotiate with them and oversee the entire sale. However, most of them will report that it is an exhausting procedure and that if you can pay someone to do it, you should. Hence make sure that a business broker is also part of the team you assemble to sell your business.

The most important benefit of using a business broker is the exposure you get to a large pool of potential buyers for your business. A business broker can contact potential buyers on your behalf, and protect your confidentiality until there is a definite indication of interest on the part of the buyer.

A business broker can also provide assistance in locating a competent lawyer and accountant to handle the sale. The agreement between you and your business broker will specify factors such as the fee to be paid, the payment method and the period for which your business will be listed by the business broker. Most business brokers are flexible about the exact arrangements they have with clients, so if you have any particular requirements, approach the broker and see if they can be met.

Yes. There are many reasons to use a business broker when selling a business, and they start right from the process of finding a buyer.

You can advertise that you are looking for a buyer in the business section of local papers. If your funds permit, you can even place an ad in a paper like the Wall Street Journal, but once your employees find out that you’re thinking of selling, you could start having problems with your business. Important employees might quit, fearing that the company has a shaky future. This in turn will affect the performance of your company and make it harder to sell, causing you undue stress at a time when your primary concern should be locating the right buyer. Further, you could lose customers and suppliers who fear that the future of the company cannot be relied upon. The common assumption, that a business is put up for sale when it is not doing well, will be harmful both to your sale as well as the functioning of your company.

This is why you should use a business broker to find a buyer. A business broker will have extensive lists of potential buyers, so finding the right buyer becomes a matter of looking through a list to find a good match. Advertisements about the sale will be run under the business broker’s name, so that your intentions remain confidential until you decide it’s the right time to let your employees, customers and suppliers know.