When the owner or owners of a closely held small business decide its time to sell or are approached by a potential buyer, the first order of business should be determining the business’ value or the value of the selling owners’ interest. Innumerable factors are considered in determining the value of a small business, and appropriate professional advice from your accountant, lawyer, business valuator, appraiser, tax adviser, business broker, industry experts and other consultants should not be overlooked. In addition to the book, replacement and market values of your business, other factors to consider include:
- Legal Constraints. Corporate bylaws, and legal restrictions as well as buy/sell, shareholder and other agreements may limit or restrict salability.
- Tax Consequences. Paying or deferring taxes and the parties’ transaction tax treatment are substantial considerations.
- Legal/Licensing. Legal, professional and industry requirements and licensing restrictions on transfers, operation and ownership.
- Industry Conditions. Competition, consolidation, technology, innovation, capital costs, investments and other industry influencers.
- Market Conditions. Local and national competition, demand, supply, online sales and other factors.
- Business Trajectory. What does the history of your business and its industry project for its future?
- Capital Costs. Who would finance an acquisition, how and at what cost?
- Partial Sales. What discounts are appropriate for control, minority ownership and lack of marketability.
- Return on Investment. Does the business generate a sufficient return over the compensation paid to its owners?
Good professional advice on selling your small, closely held business or your interest in one can be crucial to a successful and profitable transaction. The experienced business attorneys at Brooks, Tarulis & Tibble, LLC can help prepare you for and guide you through a business sale or purchase. Please call us if you have any questions or if we can help.