June 2016: Small Business Success

Selling a business takes many steps

Jennifer McCluskey

Jennifer McCluskey

At the Small Business Development Center, we work with many clients who are trying to buy a business. However, business owners who plan to sell their business can also benefit from a solid plan. If you are thinking of selling your business now, or at some time in the future, there are specific actions you can take and documents you can begin to prepare that will make this transition go smoothly.
When you sell a business, if the person buying your business will need a loan, the bank will require the last three years of your business tax returns and sometimes a current year report. Even if you don’t anticipate someone buying your business would need loan funding, you can be sure that the buyer will want to see financial documentation that you are running a sound and profitable business. So if you are planning on selling your business in the next few years, it can be helpful to talk with your accountant to insure that your tax records reflect an accurate picture of the business’s income, expenses, and profits.

Develop a clear list of the assets of your business. Listing equipment and real estate owned by the business would be the first step, but some more intangible goods such as your customer list may provide just as much, if not more, value to a buyer. Be aware that a buyer may actually be one of your competitors, so you may want to structure the documents you provide to the buyer in a way that protects your sensitive data. For example, you can state that your customer email list includes information for 1,000 contacts without providing their full contact information. A properly written nondisclosure agreement can be essential.

Other documents you may want to locate include real estate documents and clear information about any liens that are placed on your business equipment, inventory, and/or property. Pulling together a list of your employees, your licenses, suppliers, and insurance information can also be helpful. You will also want to dust off your partnership contracts or your LLC operating agreement. Make sure these documents are still accurate and do not need updating.

Decide how much continuing involvement you want to have in the business and for how long. It is recommended that you keep post-sale involvement in the running of the company brief, as long-term involvement rarely works for anyone. If you plan to sell the business but keep ownership of the property as a landlord, you will want to have those documents ready for buyers to review. If you plan to sell the business to a relative or an employee, make sure that person is well-prepared and has already been involved in management decisions so they will know what issues they will have to deal with when they take the reins.

Prepare emotionally. The business you are selling may be as close to you as your children, and it may be difficult to leave. You will also want to talk with a financial advisor, especially if you are retiring, to make sure you have enough income to support yourself. If you are depending on the business sale to fund your retirement, it may be in your best interests to look into hiring a business broker, or a real estate agent if property is involved, to make sure you get the best sale price. It may also be important to get a business valuation done by an accountant.

Finally, make sure you get everything in writing and involve an attorney. You want to make sure that the sale is completed properly, all fees and taxes are paid, and you correctly close out all of your documentation. This will help make sure lingering issues will not come back to bite you in the future.

For more information about selling your business, the book “Endwise” by Brian Lincer is a great resource and the source of some of the information above. If you are looking for assistance in buying or selling a business, you can also contact the Small Business Development Center at either SUNY Canton (315) 386-7312 or JCC in Watertown (315) 782-9262.

Jennifer McCluskey is a certified business advisor with the New York State Small Business Development Center at SUNY Canton. Contact her at mccluskeyj@canton.edu. Her column appears bi-monthly in NNY Business.