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BUYING OR SELLING A BUSINESS

The process of buying or selling a business can be a daunting and costly process. It involves decisions regarding an individual’s personal role, transitions of the business, the finding of value and agreement on price, buyers due diligence, finance, accounting, tax, and legal structure.

Business owners and entrepreneurs have spent precious time and energy building a business and want to maximize the amount they receive for it. A purchaser obviously wants to purchase the business at a discount so that there will be an immediate upside or that the transition to new ownership will be less costly. An effective negotiation is the key to reaching an agreement.

Fundamentally, a business can be sold as a group of assets or as shares. A “pure” asset based transaction requires a valuation of the assets, a search for liabilities attached to those assets, and documentation surrounding the transfer. It often does not address a business name, trademark, advertising, employees or other operational or liability issues. The assets change ownership only, but the positive attributes of name and goodwill and the negative attribute of contingent liability remain with the seller. In most cases, a purchaser will want to purchase assets because of a lower level of exposure to legal or tax liability.

A “pure” share based transaction requires a buyer to research and perform due diligence on the company. This may require more work in order to feel comfortable with any outstanding liabilities that will be assumed by the new owner. A seller usually wishes to sell shares as opposed to only assets as it generally results in a more favorable tax treatment and may be a “cleaner” deal from a seller’s point of view. Transactions can be structured or negotiated to meet both parties needs and “hybrids” of each type may address outstanding issues.

In either situation, whether buying or selling, an experienced professional or team can help identify pitfalls for either party and issues that may be one sided.  This team may require differing skill sets including legal, accounting, finance, and investment banking but a team leader is imperative to act as “quarterback” in negotiating and structuring a business deal.

By Jeff Carlson
December 29, 2005