[IMGCAP(1)]As a trusted business advisor, your clients count on you to help with the major transition periods of their business life.
Perhaps the most important of these will be the sale of their business. When it comes time for your client to retire or to exit their business, they’ll be coming to you for advice. In order to prepare for that time, it’s important to have a sound understanding of the complexities of the sales process, and how you can most effectively help your client successfully navigate this challenging transition.
With that in mind, here are answers to some of the most common questions your client may ask when considering a business sale:
When is the right time to sell?
The timing of a business sale can be tricky. There really is no perfect way to predict how the broader market will change in the coming months and what effect that will have on your client’s business. What we do know, however, is that most business owners have been shying away from selling for the past few years, waiting on a recovery to boost value. But 2010 saw a slight improvement in the business-for-sale market and many experts expect that 2011 will be a turning point.
Financing options are improving for buyers and banks are putting a new focus on lending; all signs that point to a rejuvenated market that should provide good opportunities for business owners ready to start the sales process. Additionally, the current favorable long-term capital gains tax rates were extended until at least the end of 2012, at which point they may increase.
Business owners thinking about selling should be made aware of this potential change so they can aim to sell before the change takes place.
Who else can help me with the transaction?
As an accountant, you should be able to help your client navigate the often complicated tax implications of a business transaction. But you should also recommend that your client consider hiring a few other experts to make sure the deal and transition go smoothly. Foremost of that group is an accredited business broker or valuation professional. Suggest brokers who are members of the International Business Brokers Association (IBBA), and who have the Certified Business Intermediary (CBI) designation. These experts can lend important business-selling insights and ease some of the transition responsibilities off of you and your client. An attorney can also prove helpful when it comes to the negotiation and contract stages of the sale. Understanding the details of a business sale contract can be challenging. Be sure your client is getting the best advice possible from experts in each area.
Where should I advertise my business-for-sale?
A broker will be able to help with this process, but it’s important that you can help your client go through these options as well. Some clients may already have a buyer in mind, as planning to sell to a family member, friend or employee is common. But encourage your client to market their business on the open market first, if only to evaluate the appropriate selling price for the business. Listing online or through a broker allows the seller to gauge the level of interest in their business at the expected selling price. They may find that their businesses’ value is much higher than they originally anticipated. If interest is low, they can always go back to their original group of buyer candidates. For those who don’t have a predetermined buyer, it’s important they get the word out however they can. Online advertising, broker outreach, and industry connections and publications are just a few options. The way to generate the highest selling price is to create an auction-like atmosphere with several potential buyers driving up the price.
How do I know if interested buyers are qualified to buy my business?
This is a very important issue as sellers can often be overwhelmed by a high number of inquiring buyers. Be sure to warn your client that many of these callers may not be viable candidates and, in fact, could be competitors snooping for information on your client’s business. Oftentimes, people will call because they are interested in buying a similar business soon, but may not have the financial resources to make a purchase now. To help eliminate these people from the candidate pool early, ask questions to qualify them financially. Finding out how long they’ve planned on buying a business, what they expect their down payment to be, and how they plan to finance the purchase will quickly tell you and/or your client if the potential buyer has put substantial thought into the purchase. By weeding out these people early, you’ll have more time to concentrate on quality buyers.
Should I be offering seller financing?
Quite simply, in today’s challenging market environment, every seller should expect to help finance their business sale. Although we have seen emerging signs of an economic recovery, obtaining financing for purchase from banks is still challenging for most, if not all buyers. As a result, most buyers still need help, as very few can pay all cash for a business purchase, and those that do secure bank financing will still be required to have some level of seller “skin in the game.” For the past few years, it’s been very rare to see a closed transaction go through without some level of seller financing. For your client, this means they should expect to receive a significant portion of the sale proceeds over an extended period of time, usually three to five years. Go over this process with the seller and develop a financial plan to make sure the client understands the implications.
What are the tax implications of a business sale?
As the accountant, this is where you’ll be needed most. It’s likely that you’ll understand your client’s tax situation, but make sure to explain it early on in the process. You don’t want your client to be surprised during the process, as surprises never help transactions close. Make sure he or she understands the tax consequences associated with different sales strategies. For example, when selling to a family member, friend or employee, the main goal will be to limit tax liabilities for both sides. In other scenarios, your primary concern might be what your client’s post-tax profit will be. Helping your client understand why these taxes exist and how to best handle them will expedite the sales process.
Am I able to walk away after the sale is complete?
In most small business transactions, the current answer is no. The former owner often stays on for a negotiated period of time to help advise and guide the new owner. Discuss this process with your client early and find out how long and how many hours he or she expects to put in. Some sale contracts will also include a fee to be paid to the former owner during this time. Being prepared with your client’s post-sale expectations will help ease the negotiation period and lead to a successful closing process.
There are certainly many other details to go over with your client, but having this broad understanding of the transaction process will help you provide sound advice. With your help, your client will maximize their final sale price and continue counting on you as their trusted advisor.
Mike Handelsman is group general manager for BizBuySell.com and BizQuest.com, the Internet's two largest and most heavily trafficked business-for-sale marketplaces. Both sites feature business valuation tools that draw from the largest databases of sales comparables for recently sold small businesses and include two of the industry's leading franchise directories. Since 1995, BizBuySell and BizQuest have offered tools that make it easy for business owners and brokers to sell a business and for potential buyers to find the perfect business. Together, BizBuySell and BizQuest list more than 75,000 businesses for sale at any time and have over 850,000 monthly visits.
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