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The Top Three Major Legal Mistakes to Avoid During a Sale

The business sale process can be complex, which is part of the reason why it makes sense to have expert help in the form of a business broker.  Legal mistakes can be very costly mistakes.  A legal mistake can also bring the entire sale process to a sudden and complete halt.  Let’s take a closer look at what you can do to avoid these kinds of issues when selling your business.

Major Mistake 1 – You Skipped the Non-Disclosure Agreement

Nothing quite invites trouble like skipping the non-disclosure agreement.  If a deal falls through, then you have the NDA backing you up.  This document ensures that the prospective buyer doesn’t tell the world that your business is up for sale.  Never assume that a deal is going through until it actually is 100% complete.  Buying or selling a business is a complex process with lots of moving parts.  There is plenty of room for things to go wrong, and that is why you always need to have an NDA in place.

Major Mistake 2 – You Don’t Work with an Attorney

Let’s be very blunt here, if you are selling a business, then you need an attorney.  Just as there is no replacement for an NDA, the same holds true for working with a lawyer.  It is also vital that you properly prep your business for sale, which means getting paperwork organized and making sure that you have legally checked all your boxes.  Working with an experienced and proven attorney will help you ensure that your business is ready for sale.  If you’re not prepared for the deal, it can make buyers nervous.

Major Mistake 3 – You Failed to Get a Letter of Intent

A letter of intent is a valuable, and necessary, legal document.  Some sellers are reluctant to use it, fearing that it will slow down the momentum of the deal.  However, since this letter works to protect your interest and outlines expectations, this step should not be skipped.  For example, a letter of intent details the termination fee for the buyer, meaning that the buyer can’t walk away without consequences simply because he or she is having a bad day.  Importantly, a letter of intent ensures that you are only dealing with serious buyers.

Many things can go wrong while selling a business.  The more prepared you are before you begin the process, the greater the chances that you will not only avoid headaches, but also be successful.  Long before you put your business on the market, you should begin working with a capable business broker and attorney.  Their input and advice will prove to be invaluable and help you avoid a range of costly and time-consuming issues.

Copyright: Business Brokerage Press, Inc.

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Interested in Buying a Business? Check Out These 3 Commonly Overlooked Areas

When it comes to buying a business, nothing is more important than the factor of due diligence.  For most people, this investment is the single largest financial decision that they will ever make.  And with this important fact in mind, you’ll want to leave absolutely no stone unturned.

Let’s examine the three most commonly overlooked areas when it comes to buying a business: retirement plans, 1099’s and W-2’s, and legal documents.

1. Examine All Legal Documents

While it may sound like a “pain” to investigate all the legal documents relating to a business that you are vetting for purchase, that is exactly what you have to do.  The very last thing you want is to buy a business only to have the corporate veil pierced.  Everything from trademarks and copyrights to other areas of intellectual property should be carefully examined.  You should be quite sure that you receive copies of everything from consulting agreements to documentation on intellectual property.

2. Retirement Plans

Don’t forget about retirement plans when you’re buying a business, as this mistake can quietly translate into disaster.  Before signing on the dotted line and taking ownership, be sure that both the business’s qualified and non-qualified retirement plans are 100% up to date with the Department of Labor and ready to go.

3. W-2’s and 1099’s

If 1099 forms were given out instead of W-2’s, you’ll want to know about that and be certain that it was done within the bounds of IRS rules.  Imagine for a moment that you fail to do your due diligence, buy a business and then discover that you have problems with the IRS.  No one wants IRS problems, but a failure to perform due diligence can quickly result in just that.  So do your homework!

Never forget what is at stake when you are buying a business.  If there has ever been a time to have laser-like focus, this is that time.  There can be many skeletons hiding in a business, and you want to be sure that you protect yourself from any unwanted surprises.  Not performing your due diligence can lead to a shockingly large array of problems.  One exceptional way to protect yourself is to work with a business broker.  A business broker knows what to look for when buying a business and what kinds of documents should be examined.  There is no replacement for the expertise and experience that a business broker brings to the table.

Copyright: Business Brokerage Press, Inc.

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5 Key Factors in Transferring Your Business to a Family Member

The odds are that you’ve put a great deal of yourself into your business.  Inevitably, the day will come when you have no choice but to walk away from your business and begin a new chapter of your life.  Quite often, businesses are transferred from one family member to another.  In this article, we will examine 5 of the key factors you’ll want to consider when transferring your business to a family member.

Factor #1  Gifting Can Have Numerous Benefits

Will you be selling your business to a family member or simply gifting that business?  Gifting comes with several major advantages, for example, this approach can reduce your real estate taxes.  Also, the gifting process can allow you to maintain a level of control if the agreement is written properly.

Factor #2  The Buy-Sell Agreement

Don’t overlook the importance of the buy-sell agreement, which works to put everything in writing.  You may be tempted to forgo a contract since you are dealing with a family member, but this is a mistake, no matter how close you might be with your loved ones.  A buy-sell agreement adds clarity to the process, which can help to keep confusion levels low and the chances of success high.  When the time comes to transfer your business to a relative, you’ll want an expert to create a document that outlines all relevant details.  It should feature everything from the value of the business and the amount being paid for the business to who will be kept on the payroll to what level of involvement you’ll have once the process is finished.

Factor #3  Seller Financing

Seller financing is quite common among sellers, and when relatives are involved it becomes even more common.  One option is to consider a private annuity.  A private annuity allows for payments to be spread out for many years and can even extend until the end of your life.

Factor #4  Considering the Self-Cancelling Installment Note

In the installment note, it is possible to feature a self-cancelling clause, which can definitely benefit your family in the future.  This part of the paperwork will confirm that if you were to pass away before all the payments have been made, the remaining debt can be attached directly to your will.  If you are a parent selling a business to a child, then one of the key benefits of an installment note is that it keeps your other children from paying excess income tax on your estate.

Factor #5  Transferring a Business to a Relative and the IRS

You can expect the IRS to take a second look when you sell a business to a family member.  The IRS does this to make sure that everything is above board, due to the fact that many past business owners have acted in an unethical manner.  You’ll want to be very sure that every aspect of the sale is done professionally and that you have all your paperwork in order.

A business broker can help you deal the unique particulars that come along with selling a business to a relative.  Every business is different, and every sale is different too.  A professional business broker can help you avoid common mistakes and pitfalls.

Copyright: Business Brokerage Press, Inc.

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Maintaining Confidentiality Throughout the Sale Process

There are two key ingredients when it comes to selling a business: professionalism and confidentiality.  If either of these two ingredients are lacking, then you’ll most likely run into problems.  Sadly, many sellers see their deals fall apart due to a breach of confidentiality.  You certainly don’t want to be among their ranks.

The simple fact is that a breach in confidentiality can negatively impact everyone from suppliers and vendors to creditors.  For example, vendors could change their terms and this, in turn, could have a major, negative impact on cash flow.  There can be a chain reaction of events that spirals out of control.

The potential negative outcomes of a breach in confidentiality are quite numerous, for example, employees and customers alike could begin to worry about the future of the business.  Employees could begin to worry about the safety of their jobs and begin looking for a new position.  Dangerously, this situation could lead to changes in management and the loss of key employees.  Likewise, customers, fearing instability with the business, could also decide to take the business elsewhere, leading to revenue problems.

Yet another complicating factor comes in the form of the competition.  If the competition hears that your business is up for sale, they could sense blood in the water and look to steal your customers.

Ultimately, a breach could give potential buyers cold feet.  At this point, it should be very clear that protecting confidentiality is a must.  One of the single best ways to ensure that confidentiality is maintained is to opt for an experienced and proven business broker.  Business brokers understand the simply tremendous value of keeping things under wraps.

It may be tempting to try and sell your business on your own, but it is vital to understand that doing so can damage your businesses’ reputation.  A good business broker knows how to shield your business from breaches of confidentiality.  By working with a business broker, not only are confidentiality agreements signed and taken seriously, but also you’ll know that prospective buyers are vetted and fully pre-qualified.  According to an article on Inc.com, broker feedback has revealed 9 out of 10 interested parties who respond to “business for sale” ads are not qualified to make the purchase.  Why would you want to risk giving away key details to these parties?

In short, you’ll have a much better idea of who you are dealing with and how serious they are about buying your business.  At the end of the day, there is no replacement for maintaining confidentiality.

Copyright: Business Brokerage Press, Inc.

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