At The Reha Law Firm LLC, we handle a number of business acquisition transactions every year and approach the buying and selling of businesses with creativity and imagination. As many businesses today rely on information and relationships, as well as on other intangible assets, we focus on these aspects of a business’ value, trying to preserve the highest available value for the seller and the greatest degree of asset capture and post-closing enforcement of intangible asset protection possible for the buyer.
There are some key elements that every business owner should understand as part of the sale of business process. These elements include the following:
Price — Many times, the price at which a business is being sold is already decided by the parties before the lawyers are brought in to provide advice. For those parties seeking to negotiate price, there are some formulas which are more or less accepted in some industries, while other industries have no “rules of thumb” whatsoever.
Appraisers can be of some assistance in determining price, and the owner may be aware of the price generated by other similar businesses in similar situations. In the end, what will drive price will be the interest of the buyer in buying, the interest of the seller in selling, the financial performance of the business, the general health of the industry, the economy, and the value of the business’ assets.
Stock or Assets — There are really only two types of sale transactions: a sale of the company’s stock and a sale of the company’s assets. Usually, closely held businesses are sold on an asset basis, primarily because a sale of assets will cut off many general creditor claims as to the assets being sold.
There may be overriding reasons to sell stock, however, such as a key relationship with a third-party customer, vendor, franchisor, or regulator that may be easier to accommodate if the business itself remains within the same company, which will typically result when stock is sold instead of assets.
Financing — Some business sales are financed by institutional lenders, some businesses are sold on a cash basis, and some sales are accomplished through “owner-carry” financing. For the business owner who will finance all or part of the sale (a very common structure for the sale of a closely held business), the reality that the owner will be leaving the closing as a “banker” presents a large number of additional issues that must be planned for and documented.
In addition, since the seller will have a long-term vested interest in the business’ continued financial viability, owner-carry financing presents unique challenges from a future business perspective.
Real Estate Issues — Many times, the sale of a business will also generate the sale of the building that houses the business. Other times, consent for assignment of a lease by a third-party landlord will be necessary. In either instance, proper planning, negotiation and documentation are a must.
Business owners need to understand what makes their business unique and valuable. Perhaps it’s a reputation for service. Maybe it’s a handful of key employees and the creativity they present. Perhaps it’s a unique product or service.
Focus on these matters will typically allow for attention to appropriate details, which, with proper communication, planning and documentation, will be adequately represented and protected in the transaction. Likewise, since people are usually the key ingredient in many of the business’ important relationships, issues such as retention of key employees, future compensation and the like will gain importance.
The point of sale is also a moment in a business’ lifecycle that presents unique opportunities to protect assets, with such tools as effective non-compete agreements, nondisclosure and trade secrecy provisions and the like.
Attorney John F. Reha, founder of The Reha Law Firm LLC, is a noted authority and author on issues commonly presented by non-compete and trade secrecy agreements. A Denver sale Of Business Lawyer with more than 30 years of experience, John has taught this area of law to many other attorneys and has spoken to numerous trade groups on these subjects, including addressing the absolute necessity of building many business acquisition documents around capturing intangibles, which commonly are the most important assets in the transaction.
John also taught for many years as part of the adjunct faculty of the Colorado Society of Certified Public Accountants on business acquisition transactions. In teaching, he has stressed the importance of planning and protection to insure that the buyer and seller both obtain the greatest value and protection possible from these fundamentally important transactions.
The Reha Law Firm LLC can assist with business analysis, sale planning, and facilitation and proper documentation of the transaction. Our lawyer has extensive skill in this area, bringing imagination, creativity and energy to the table to assist the buyer or seller of the closely held business. To schedule a consultation, call our Littleton office at (303) 717-3632(303) 717-3632, or contact us online.
DISCLAIMER: This information is being provided as a public service, and by doing so, neither The Reha Law Firm LLC nor any attorney associated with The Reha Law Firm LLC is providing any legal advice of any nature to any person or firm, whatsoever. If the reader believes that he or she is in need of legal advice as to the issues discussed herein or for any other reason, he or she is advised to retain an attorney of choice to provide appropriate legal representation.
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