Small businesses for sale

Selling off a business requires a lot of your time and efforts. When you sell your business the person intending to acquire your business is going to demand a huge amount of information regarding your business. There can be a possibility that you do not get any offers or you do not get an appropriate offer. During the selling process you must be ready for the risk that a suitable buyer may not come forward. Selling a business involves a lot of legal issues thus you will need to seek advice from an attorney. Besides there are many aspects that you should take care of while selling your business.

When selling your business you should follow these steps for valuing your business, bargaining the deal, and creating the sales agreement. For making the selling process smooth you should follow these practical steps.

1. Determine a Realistic Price Range: If you price your business too high, you will scare away purchasers. If you price the business too low, you will risk selling at a loss. Your objective should be to figure out a price or range of price that seems realistic.

Valuing a business is both an art and a science. There are many methods that can be used to value a business. For example, you can value the business on the basis of the business?s assets and add then add a sum equal to the goodwill of the business that the business has earned. You can also price your business on the basis of the price of a similar business in your industry that has been recently sold for. You can also use the industry formula (for example, a value based on the number of units sold annually or a multiple of average earnings) that will help you to set a price range for your business.

2. Understand the Tax Consequences: The taxes that you will have to pay on selling your business can be a huge sum thus it pays to know that how much the tax bite would be. You should try to lower the tax bite if possible through adequate tax planning. Taxes can get very complex. You should take help from a CPA or other tax expert. The tax amount that you will have to pay will depend on two key factors i.e. how your business is legally set up and that whether you are selling only the assets of the business or the entire entity.

When there is an entity sale, you sell all of the stock in the entity. The buyer winds up the business possessing the entity itself. In this case stock is treated as capital assets thus the gain on selling the business is taxed at the long-term capital gain tax rate which is lower. (Here it is assumed that the stock was owned for more than one year.)

Whereas in case of assets sale, the price is allocated to the various assets for example, furniture, equipment, the business name etc. and you will have to categorize the assets in seven IRS groups, such as inventory, other tangible property, and goodwill. In some groups the capital gain from property is taxed at the ordinary income rates and in some other classes the gain is taxed at the long-term capital gain tax rate, if the property is owned for more than a year.

3. Prepare for the Sale: When you get ready your business for sale you should well-groom your business premises and make it look attractive and systematic. The most important point here is to keep your financials in good shape. You should reassess your tax-return numbers for the prospective buyers. This involves adding back the optional expenses such as the medical insurance for you and your family, travel and entertainment expenses, conferences and trade shows, memberships of clubs, subscriptions to magazines, newspapers, and electronic services etc.

In reconsidering your tax numbers, you are not misleading either the IRS or the prospective buyers. You are merely pointing out that the buyer may wish not to spend money on all or some of these items in the future.

4. Seek Potential Buyers: The potential buyers for your business can be some other party or it can be an employee, a relative, a friend, a supplier, or even a customer. They can also emerge as an interested and rational prospect. Finding right buyers for your business is not an easy task. You will have to reach a bigger group of potential buyers. This includes putting ads in newspapers, in trade publications, and on business-sale websites.

You can also engage a business broker to reach more buyers for your business but you will have to pay a significant commission for the broker's services. An agent can help to keep the information from leaking out precipitately.

5. Negotiate Your Deal: Once an interested buyer has been attracted, then you will need to work out the terms of the sale. Some key issues that you should take care of while working out the terms of sale are the following:

Entire entity would be sold or just its assets.

The payment would be in lump sum or installment payments.

In case of an installment sale, what will be the value of the down payment of the entire amount and in how many installments would be there?

Will you work for the buyer after the closing of the deal?

Do you have to sign a non-competing agreement?

6. Sign a Sales Agreement: Once you have discussed the key terms with the buyer, you should put the deal in writing. You will have to list the name of all of the assets that the buyer is purchasing and the value of those assets for tax purposes and any business contracts that the buyer is assuming, including business leases. The sales agreement should include clause for protection that assures that you will get paid the full sale price.

When there is an installment sale, you should require the buyer to provide a guarantee for the unpaid amount and you should retain a security interest in the business until the sale price is fully paid. If you make the first draft of the sales agreement yourself, you should get it reviewed by a business lawyer to make sure that you have covered all the points relating to the deal.

7. Plan for the Closing: The closing is the meeting at which you transfer the business to the buyer. To decrease the chances of last-minute disturbances, you should make a checklist of all the papers that you will need and all that the buyer is expected to bring. Some common documents and items that you may need are alarm codes, computer access codes, safe combinations, asset allocation statement (IRS Form 8594), consent of entity owners to sale of assets, non- compete agreement, customer lists, employment contract, keys to file cabinets, premises, and vehicles, mortgage or deed of trust etc.

8. File Paperwork with the IRS: After selling the business, you and the buyer will be required to fill the IRS Form 8594, Asset Acquisition Statement and you will have to file it with your tax returns for the year in which the sale took place. The forms should be filled by you and the buyer together; you should allocate the purchase price amongst the assets purchased and you should classify the assets among the various IRS groups, and you should also file duplicate copies of the form.

You should follow these simple steps while selling your business.