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Selling a Business Can Be A Challenging Process
Business brokers often get asked by owners some standard questions, usually along the lines of how long a ‘typical’ sale takes and how much money do they think the business will sell for. Another common question is what sort of challenges might be expected. The hard truth is that the smooth business sale is an anomaly – selling a business is usually challenging for one reason or another and it is sometimes the unexpected that occurs.
The process of getting a company sold, big or small, can be complex and the best advice that a business broker can give to their client is to expect the unexpected to happen before the business is actually sold.
This article will explore three real world examples of unexpected issues that can arise and jeopardize a deal.
Landlord not co-operating
When you are selling a business you should never assume that the landlord will simply comply and effortlessly approve the transfer or assignment of a lease to the buyer. Read your lease or have your lawyer review it before listing your business for sale. During a change in control scenario, when a premises lease needs to be transferred, a landlord may see this as an opportunity to strengthen the lease. They may negotiate very vigorously with the purchaser. The landlord may also have an ulterior motive and not want the business to continue operating in the space so they might even use underhanded means to intimidate or scare off a buyer if it is in your best interest. The point is to never assume anything and know what your rights are.
Seller’s family member (or lawyer, or accountant, etc.) has an opinion on the deal
Business brokers often hear from business sellers that they were told by a cousin or a lawyer, etc that “they’re selling for too low.” Business owners who may otherwise have been happy with a transaction can get some very bad advice from people not qualified to give such advice and risk losing the deal. For example, a lawyer may state an opinion on what a business should sell for in their opinion but the reality is that a lawyer is probably not qualified to form an opinion on a business valuation and should consider sticking to giving legal advice. The point is to talk to your professionals that you trust that are qualified to give opinions.
There’s taxes to be paid!
Sometimes sellers of businesses do not plan with their tax advisors in advance to determine how much taxes would be owing after a business is sold. A seller should run several scenarios on how much cash is left over after the business is sold based on the various structures. A business can be sold as an asset sale or a share sale. There are various tax treatments based on how assets versus goodwill are allocated, etc. A business owner who educated themselves on these implications in the beginning will have less surprises during the negotiations.
A smooth business sale is possible, but a little homework must be done to mitigate any foreseen challenges. Unfortunately, the effortless business sale is usually the exception, not the rule, but working with an experienced business broker can give your some insight into how to sell a business.
