Navigating the complex world of selling a business can be a daunting task. Understanding your business’s strengths and weaknesses, identifying your ideal buyer, and being aware of the potential costs and benefits entailed in selling your business are all pivotal points to consider. For peace of mind and in order to secure sound advice throughout the process, you may wish to speak with an experienced business law attorney who can provide counsel on potential tax liabilities and help with negotiating the sale of a business, as well as drafting the final business sale contract. Business owners in Arizona preparing for the process of selling a business can schedule a consultation with one of our business law attorneys at Harrison Law, PLLC by calling (480) 320-2310.
Why Sell Your Business?
Selling a business poses an opportunity for entrepreneurs who have achieved their commercial and financial goals and now look forward to a more relaxed lifestyle. Alternatively, in some cases an owner may consider selling a business they have built, or their interest in a business partnership, in order to free themselves up to pursue other opportunities. In either case, selling a business can offer a substantial financial payoff. Maximizing the potential rewards of selling a business will benefit from careful organization and planning, as well as from the application of business experience and financial acumen.
Selling a Business To Make a Profit
Selling a business at a profit is often considered the feather in a successful entrepreneur’s cap. After years of investment in terms of time, finances, and resources, a successful sale enables business owners to reap both monetary benefits and satisfaction from achieving a profitable outcome.
Selling a Business To Have More Time
Freeing up personal time counts as among some of the most common reasons for deciding to sell a business. Running a business requires intensive time commitment and is often synonymous with missed personal engagements and compromised work-life balance. Post-sale, former business owners may find themselves able to pursue passion projects, spend more quality time with family, or finally take trips they have been planning for years.
Selling a Business To Fund New Ventures
In addition to the benefits mentioned above, selling a business opens up new investment opportunities. With the infusion of substantial funds from the sale, entrepreneurs are well-positioned to explore other avenues for wealth generation. Whether these investments pertain to financial markets or venture into new business endeavors, having a solid capital base is undeniably beneficial.
Selling a business is a complex yet rewarding process that provides ample benefits beyond the financial aspect. However, it’s equally crucial to understand the legal intricacies involved in such a transaction. So before you venture into the realm of selling your business, get yourselves equipped with comprehensive knowledge about the process, potential costs, and legal requirements. This approach promises not just a successful sale, but also a smoother transition to your next venture.
Things To Know Before Selling Your Business
As fruitful as selling a business may seem, entrepreneurs considering a business sale need to understand the legal implications of this process. The type of business structure–be it a partnership, limited liability company, or corporation–greatly influences the legal aspects of selling a business.
For instance, contract clauses in some partnership businesses require any partner wishing to dissociate to offer the other partners the right of first refusal to purchase their interest. Whether this contract clause applies or not, Arizona business owners should be aware that the dissociation of any partner from a partnership business registered in the state will be subject to the requirements for valuation of a departing partner’s interest specified under § 29.1061 Ariz. Rev. Stat. (2023). Similarly, selling a limited liability company or a corporation may require steps specific to the business structure, such as filing Articles of Dissolution with the state and resolving outstanding business obligations. Lastly, for businesses under sole proprietorship, it is crucial to note that the sale will transfer not just business assets but personal liability.
Checklist for Selling Your Business
Like most other business activities, selling a business will benefit from careful planning and attention to detail. Consider the following steps as essential items to include on any checklist for selling a business:
1. Gather all Business Licenses, Contracts, and Agreements
As the first step in selling a business, gather all business-related licenses, contracts, and agreements. These documents establish the legal identity of your business, define relations with partners, clients, vendors, and solidify your rights to conduct certain operations, which may vary by industry and location. Business licenses, for example, show that you’re legally recognized to perform your business’s specific activities, typically within a specific jurisdiction. Similarly, contracts and signed agreements provide proof of your business’s various relationships with different entities and stakeholders.
2. Get an Accurate Business Valuation
An accurate business valuation is a vital aspect of selling a business. A professional appraisal provides an objective assessment of the business’s worth, and for this reason often functions as a crucial point of reference during negotiations with potential buyers. Techniques for determining the value of an enterprise vary, ranging from the income approach, which considers projected revenue and potential risks, to the market approach, comparing similar businesses. In some cases, engaging third-party experts to conduct industry-specific valuations can help to support the appearance of transparency and legitimacy, reassuring buyers who may be concerned about market volatility or regulatory hurdles common in a specific area of business.
3. Communicate Availability
In a few cases, such as selling interest in a partnership business, “communicating availability” may need to begin with meeting contractual requirements for offering business partners first refusal. In most others, you will need to develop a business marketing strategy that highlights the strengths of the business and increases awareness that the operation is available for sale, particularly among the individuals and entities most likely to be interested in making a purchase. Appropriate marketing strategies will likely vary by industry but could include methods such as online listings, print ads, and word-of-mouth marketing.
Depending on the type of business, it may be a good idea to take a few extra steps to ensure that the business is packaged attractively and is ready to market. For instance, solopreneur businesses need to showcase more than just a ‘job’ being sold, but a well-established, profitable business proposition.
4. Negotiate the Sale
When potential buyers express interest, negotiations become the focal point of the sales process. Clearly understanding bottom line figures will make it easier to determine what constitutes the lower limit for an acceptable purchase offer, as well as the maximum price you can realistically expect the business to command. An attorney with Harrison Law, PLLC may be able to explore with you the advantages and disadvantages of specific contract terms and what to watch as you enter into the early stages of negotiations.
5. Finalize Contracts and Close the Deal
Once the broad outline of the deal has been agreed upon, the next step in selling a business is the legal procedure of preparing a sales agreement. This document, often drafted by a business law attorney, details the purchase of assets or stock and lists all inventory in the sale.
All assets and liabilities must be mentioned to avoid future disputes. The sales agreement should also include information about the business’s operations before the deal closes and the buyer’s level of access to your information. Once all conditions specified in the sales agreement have been met, the sale can be finalized, marking the successful end of the business selling process.
Consult With a Business Law Attorney As You Prepare for Selling Your Business
Selling a business can be a complex undertaking, regardless of the size of the business or the reason for selling. Working with an experienced business law attorney enables a business owner to focus on developing a plan for maintaining continuity of operations during the sale and transition to a new owner. Reach out to the experienced business attorneys at Harrison Law, PLLC by calling (480) 320-2310 and schedule a consultation with a member of our dedicated business law team.
© 2024 Matthew W. Harrison and Harrison Law, PLLC All Rights Reserved
This website and article have been prepared by Harrison Law, PLLC for informational purposes only and does not, and is not intended to, constitute legal or financial advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.
