As we roll into the final couple months of the year one common theme has been interest in our CFO clients either wanting to sell their businesses or getting the “itch” to consider this. We think there are many reasons why business owners want to consider selling but the biggest reasons of late are the “pop” they are receiving after coming out of the “Great Recession” and the flow of “cheap money” that makes business purchases easier to fund (if you can get the money). There are however, a few key things to consider before putting your business on the market:
- Stock vs asset sales – Typically sellers prefer, all things being equal, stock sales for capital gains treatment and buyers often prefer asset sales to maximize depreciation deductions, plus there are double taxation considerations based on your company structure.
- Selling less than 100% of your stock – Often some level of equity wants to be retained by the seller. Do you understand the tax impact on this transaction? There are also cultural and management concerns that need to be dealt with as well along with employment or consultant contracts.
- Installment Sales – Cash Flow issues on the buyers side along with deferring the tax bill (seller) create an opportunity for a better sales price with performance contingencies set in place
- Cash Down – Typically sellers want 100% cash upfront and buyers want to put down as little as possible. The truth is very few deals are all cash these days- they are often notes over an extended period of time.
- Books & Records – Solid and organized books and records are the foundation of any due diligence process – any smart buyer will want clean and accurate financial statements, and depending on size might request audited or reviewed financial statements. If your accounting isn’t clean it will probably kill any potential deal or reduce your selling price.
These are some things to consider before you consider selling your business. Whether you sell your business or not, We would also use this time to remember why you chose the business structure you did when you first started and to make sure this still makes sense. Everyone loves LLC status but often they don’t know why? additionally there are good reasons to chose C Corp status as well. Understand your structure – and your personal situation.