Our Featured Advisors, Attorney Mark Fazio and Business Broker Neal Isaacs, answer a few questions to help business owners learn how to prepare for due diligence when selling a business.
The method chosen to transfer ownership of a business for sale is one of the most important factors to consider as a business owner. And the reason for its importance is related to the wide differences in the amount of cash received (net of taxes) by the business owner across the various methods of transfer or sale. An ESOP or Employee Stock Ownership Plan is one method of ownership transfer or sale many business owners consider when they decide it’s time to retire. That said, let’s explore the ESOP as a potential method of transfer or sale from both the business owner’s and employees’ perspectives.
There are several types of loans available to business owners — so many, in fact, that the options can seem overwhelming and confusing, especially to smaller business owners without a lot of experience raising capital. This guide will help educate you on the options so you can make a more informed decision about financing your growing business while limiting added risk.
When a business owner begins to negotiate the sale of his or her business with buyers for the first time, he or she will inevitably face a difference between the buyer’s offer price and the desired selling price. It’s at this point when a lively debate between the parties will occur over the underlying reasons for the business’s asking price being what it is. At this time a seller will be well-served if able to offer justification for an increased business valuation and a higher business selling price.
According to the Chief Actuary of the Social Security Administration, “Currently, the Social Security Board of Trustees projects program cost to rise by 2035 so that taxes will be enough to pay for only 75 percent of scheduled benefits.” This bleak reality is not of great concern to the successful entrepreneur who may not need to rely heavily on social security benefits retirement. Yet, any potential reduction in social security benefits in the future is a serious threat to the well-being of the 28 million small business owners in America.
When things go wrong with the sale of a business the parties involved look for remedies in the liquidated damages provisions established in the purchase agreement. Such provisions are included when a purchase agreement has been signed in advance of an actual closing when the business is transferred and a purchase price is paid.
When a business is about to be sold, the parties to the sale may find it beneficial to establish an escrow agent to handle the transfer of certain assets and cash between the buyer and seller. Many times the parties agree to use the escrow account held by one of the party’s business attorneys. However, in many cases the parties prefer to hire an independent escrow agent to handle the assets and cash that will change hands.
The valuation multiple formulas available to compute the value of a business for sale are numerous and can be confusing to many small business owners. In fact, many professionals can be similarly confused by the various multiple formulas currently in use.
When working through a business sale, an inordinate number of resources on both sides of the table are dedicated to drafting and negotiating the Stock Purchase or Asset Purchase Agreement. This is true especially in the last one-to-two weeks before the closing. In fact, I’ve had clients remark that during their entire tenure as an entrepreneur, they never spent as much time speaking to their advisors as they did during the last week of their business ownership journey!
Successful entrepreneurs have unique opportunities to plan for paying taxes in retirement. Learn more about how to create taxable and non-taxable assets.
Small business owners have an opportunity to learn from their peers who have attempted and failed or, more importantly, have successfully sold their business during the second quarter of 2014.
In its purest form, Mezzanine Debt is a business debt instrument that carries along with it certain rights to convert debt into equity (stock, common shares, partnership interests, LLC membership units, etc.). Mezzanine debt financing is not a pure debt or a pure equity instrument. It is something in the middle. In fact, the word ‘mezzanine’ is derived from the Italian word ‘mezzano’, meaning middle, and is used to describe how this particular form of business capital combines elements of both debt and equity financing into one instrument.
Business Brokers and M&A Intermediaries may use or reference the ‘Lehman Scale’ when discussing their compensation method with a business owner contemplating the sale of their business. The Lehman Scale was originally developed in the late 1960’s and used by the Lehman Brothers when raising business capital for their clients.
Business Valuation Experts come in many forms, and for a business owner it can be very difficult understanding the various designations. More importantly, when the business owner is in need of a valuation, understanding exactly what type of expertise is necessary and ultimately who to hire can become a daunting task.