The Complete Guide to Selling a Business

Web Resources......Page 0
Table of Contents......Page 9
Introduction: Your Companion for Selling Your Business......Page 17
Is This Book for You?......Page 18
Will You Still Need to Hire Lawyers, Accountants, or Other Professionals?......Page 20
Part 1: Overview of the Process......Page 21
1. Deciding Whether—And When—To Sell......Page 23
Deciding Whether or Not to Sell Can Be Agonizing......Page 24
Do You Have a Saleable Business?......Page 26
Working Out Problems With Your Co-Owners......Page 31
Choosing the Best Time to Sell......Page 33
If You Need to Leave the Business, But the Time Isn’t Right to Sell......Page 35
Staying Involved With Your Business......Page 36
Protecting Your Future Ability to Earn a Living......Page 38
2. The Key Steps in Selling Your Business......Page 39
Figuring Out What Your Business Is Worth......Page 40
Preparing Your Business for Sale......Page 41
Marketing Your Business......Page 42
Negotiating the Deal: Key Sale Issues......Page 43
Signing a Sales Agreement......Page 44
Closing Your Sale......Page 45
3. The Key Legal Issues in Selling Your Business......Page 47
Take Presale Legal Protections......Page 48
Understand the Differences Between Selling the Business Entity or Just Its Assets......Page 49
Be Clear on What You’ll Sell and What You’ll Keep......Page 52
Understand the Transfer of Intellectual Property......Page 53
Protect Yourself Against the Buyer Failing to Make Payments......Page 54
Assure Your Ability to Earn a Living Later: Guidelines for Noncompete Agreements......Page 55
Limit Your Legal Liabilities to Third Parties Once the Business Changes Hands......Page 56
Protect Yourself Against Unintended Liability to the Buyer......Page 60
Comply With State and Local Laws That May Affect Your Sale......Page 61
4. Tax Considerations When Selling Your Business......Page 65
An Overview of Key Tax Issues......Page 66
Understanding the Federal Tax Rate That Applies to Your Sale......Page 69
Tax Issues When Selling the Business Entity......Page 70
Selling the Assets of a Business......Page 74
Asset Sale by a C Corporation......Page 77
Asset Sale by an S Corporation......Page 80
Asset Sale by a Sole Proprietorship or Single-Member LLC......Page 81
Allocation of the Purchase Price......Page 82
5. Putting a Price on Your Business......Page 91
There’s No Universal Pricing Formula: Many Factors Affect Price......Page 92
Sales of Comparable Businesses......Page 94
The Income Valuation Approach......Page 95
The Asset-Based Approach......Page 96
Industry Formulas and Rules of Thumb......Page 98
How Appraisers and Other Experts Can Help You Set the Price......Page 99
Putting It All Together to Price Your Business......Page 100
6. Working With Lawyers, Accountants, and Brokers......Page 103
Lawyers......Page 105
Accountants......Page 109
Business Brokers......Page 111
Part 2: Getting Ready to Sell......Page 117
7. Preparing Your Business for Sale......Page 119
Make Your Business Attractive to Buyers......Page 121
Get Your Paperwork in Order......Page 128
Show How Profitable Your Business Really Is: Restate Your Profit and Loss Statement......Page 135
Take Steps to Improve Business Profitability......Page 137
Add Value to Your Lease......Page 141
Communicate With Employees About the Sale......Page 143
Clean Up Existing Problems......Page 144
Nail Down Vital Relationships With Customers and Suppliers......Page 149
Prepare a Checklist of Presale Tasks......Page 150
8. Finding the Right Buyer......Page 153
First, Look for Buyers Close to Home......Page 155
Strategic Buyers......Page 160
Special Concerns When Approaching Competitors......Page 165
Marketing Your Business by Word of Mouth......Page 166
Marketing Your Business Through Advertising......Page 167
How Business Brokers Can Help Find Buyers......Page 172
How to Quickly Size Up Prospects......Page 173
9. Structuring the Sale......Page 177
Asset Sale vs. Entity Sale......Page 179
Lump Sum Payment vs. Installments......Page 186
How to Structure an Installment Sale......Page 187
Ten Strategies to Protect Yourself in an Installment Sale......Page 189
Doing Future Work for the Business......Page 196
Restrictions on What You Do Next: Noncompete Agreements......Page 201
The Future of Key Employees......Page 203
Keeping the Buyer Motivated......Page 205
10. The Investigation Stage: How Sellers and Buyers Check Each Other Out......Page 207
The Buyer’s Investigation of Your Business......Page 209
Honesty Is the Best Policy: The Importance of Full Disclosure......Page 211
Business Information the Buyer Will Want to See......Page 212
Protecting Sensitive Information With a Confidentiality Agreement......Page 228
Why and How You Should Check Out the Buyer......Page 232
Practical Steps for Evaluating a Buyer......Page 234
11. Drafting a Letter of Intent......Page 239
Why Use a Letter of Intent?......Page 240
What to Put in Your Letter of Intent......Page 241
Format for a Letter of Intent......Page 243
Part 3: Preparing the Sales Agreement......Page 251
12. Preparing the Sales Agreement and Other Legal Documents......Page 253
Overview of Your Sales Agreement......Page 254
Related Legal Documents......Page 259
Well-Drafted Documents Are Crucial......Page 260
Preparing Your Sales Agreement and Related Legal Documents......Page 261
How to Prepare Attachments to Your Sales Agreement......Page 263
Steps in Finalizing Your Sales Agreement and Other Documents......Page 264
Amending Your Sales Agreement......Page 265
13. Who’s Selling, Who’s Buying—And What’s Being Sold......Page 269
Naming the Parties......Page 270
Identifying Your Business and What You’re Selling in an Asset Sale......Page 274
Identifying the Business and What You’re Selling in an Entity Sale......Page 280
14. The Sales Price and Terms of Payment......Page 283
Sale Price: Asset Sale......Page 284
Inventory: Asset Sale......Page 289
Dealing With the Purchase of Accounts Receivable: Asset Sale......Page 291
Sale Price: Entity Sale......Page 293
Deposit......Page 294
Payment at Closing......Page 295
Promissory Note......Page 297
Security for Future Payment: Asset Sale......Page 299
Security for Future Payment: Entity Sale......Page 300
15. Dealing With Liabilities and Representations......Page 303
Liabilities in an Asset Sale......Page 305
Liabilities in an Entity Sale......Page 309
Representations: What They Are and Why They Matter......Page 310
Seller’s Representations......Page 311
Buyer’s Representations......Page 316
16. Payments for Noncompete and Consultant Deals......Page 317
Agreeing Not to Compete With the Business After the Sale......Page 318
Agreeing to Work for the Business After the Sale......Page 321
17. Other Important Legal Language for the Sales Agreement......Page 323
Contingency Clause......Page 324
Closing Arrangements......Page 325
Dispute Resolution Clause......Page 328
Technical Contract Clauses......Page 330
Additional Optional Clauses......Page 334
18. Signatures on a Sales Agreement......Page 335
Required Signatures for Sole Proprietors on a Sales Agreement......Page 336
Required Signatures for an Entity on a Sales Agreement......Page 337
A Spouse’s Signature on the Sales Agreement......Page 339
Signature Clause in a Sales Agreement......Page 341
Typical Formats for Signing a Sales Agreement......Page 342
Accepting Personal Responsibility for Commitments in a Sales Agreement......Page 345
Signing the Sales Agreement......Page 348
Part 4: Preparing the Promissory Note and Other Sales Documents......Page 351
19. Promissory Notes and Other Installment Documents......Page 353
The Promissory Note......Page 354
The Security Agreement......Page 364
The UCC Financing Statement......Page 370
Escrow Agreement for Entity Sale......Page 376
20. Bill of Sale, Lease Assignment, and Other Documents for Transferring Your Business......Page 385
Bill of Sale: Asset Sale......Page 387
Bulk Sales Compliance......Page 392
Assignment of Lease: Asset Sale......Page 396
Assignment of Other Contracts: Asset Sale......Page 397
Assignment of Intellectual Property......Page 404
Approval of Entity’s Sale of Assets......Page 405
Transferring Your Entity......Page 407
Assignments in an Entity Sale......Page 411
21. Documents for Noncompete and Future Work Commitments......Page 413
Covenant Not to Compete......Page 414
Contract for Employment......Page 420
Contract for an Independent Contractor......Page 423
Part 5: Closing the Deal......Page 429
22. Preparing for a Smooth Closing......Page 431
Where and When to Hold the Closing and Who Should Attend......Page 432
Documents for Transferring Assets......Page 434
Handling Last-Minute Problems......Page 436
Moving On......Page 438
A. How to Use the CD-ROM......Page 439
Installing the Form Files Onto Your Computer......Page 440
Using the Word Processing Files to Create Documents......Page 441
Using Government Forms......Page 443
List of Forms on the CD-ROM......Page 445
B. Sample Sales Agreements......Page 447
Sample #1 Asset Sale of a Restaurant by One Sole Proprietor to Another......Page 448
Sample #2 Entity Sale of a Bookstore by the Two Shareholders to an Individual......Page 456
Sample #3 Asset Sale of a Landscaping Business by a Single-Owner LLC to a Partnership......Page 463
Index......Page 473
Forms From CD-ROM......Page 1
Related Products......Page 493