As a business owner, you have invested enormous amounts of time and capital into growing and operating your business so that it is profitable and has value. But have you thought about your exit strategy? Don’t ignore what is probably the largest and most important transaction your business will ever have. Here are some planning tips that can help you maximize your benefits from a sale or other transfer of your business.

1. Involve your attorney early. Do you want to maximize the benefits of a sale of your business? Do you want to negotiate the best deal possible … or just take whatever terms the first buyer forces on you? Do you want to minimize the possibility of claims against you after the sale? We can help you answer these questions and prepare you for a successful sale. We can also:

• coordinate the people needed for a profitable and smooth transaction;

• help you be prepared for questions and negotiations that will come up before the sale;

• get the people necessary to make the sale happen and see it through to completion;

• draft the necessary documents, such as the non-disclosure agreement, broker listing agreements, employee non-compete and confidentiality agreements, letters of intent, purchase agreements and the like.

It is important that you contact your attorney before you start to market your business, to avoid problems down the road. You should involve your attorney two to three years before you want to close the sale of your business.

2. Involve your accountant. Do you know how a sale will affect your taxes? Do you know how to minimize your taxes from the sale? Will your accounting records support the price you want? Your accountant can answer these questions and handle the final accounting details, tax returns and prepare the allocation of purchase price required by the IRS. Don’t have an accountant? Call us; we can get one for you.

3. Select a broker. Do you have a list of likely buyers? Do you know what buyers are looking for and what price they are willing to pay? A good business broker can answer these questions and market your business to get the best price, terms and timing. Do you want recommendations for good business brokers? We have dealt with several; call us for a referral.

4. Expand your customer base. Does your business depend on one or a small number of large customers? Work on expanding your customer base; buyers pay more for businesses that are not at risk of losing a large customer. Buyers also pay more for businesses that are growing as compared to businesses that are contracting or stagnant.

5. Pay off your debts. Does your business have a large amount of debt? Is it personally guaranteed? Will the purchase price be enough to pay off the debt and leave something left for you? Buyers want to buy business assets, not liabilities. They will insist that business debt be paid off before the sale; start making arrangements now.

6. Make sure that you can transfer ownership of your business. Do you have a landlord or outstanding loans? Will they allow you to transfer ownership of the business? Do public records indicate that your assets are free of liens and available to be transferred to a buyer? Many leases and loan agreements specifically preclude the transfer of businesses without the written approval of the landlord or lender. We can help you anticipate these requirements and negotiate them. A landlord or lender that knows that you already have a deal pending may want huge concessions from you in return for their approval. Don’t wait until you lose your flexibility. Call us before you start marketing your business, so we can arrange for necessary approvals ahead of time and without unnecessary delays and additional cost to you.

7. Assemble your management team. Does the business depend on your personal involvement? Do you have a capable management team in place to run the business after sale? Do you have the arrangements in place to motivate your key employees to stay on after the sale … or at least prevent them from interfering with the business if they decide to leave?

   Businesses don’t run themselves; people run businesses. Businesses run by capable management teams have more value and are more marketable. Buyers may not want to purchase a business that depends on the day-to-day involvement of the owner. Call us to make arrangements to put your key employees in place and keep them there.

8. Get your paperwork in order. Do you have accurate and up-to date business records to support your asking price? Are your corporate minutes and other records up to date, and do they reflect positively on your business? Do your tax returns support your accounting records?

   Buyers look at these details to evaluate whether the business details have been properly dealt with and to negotiate against you. Call us so we can make sure that your business records are presentable before a potential buyer asks to see them.

9. Get a non-disclosure agreement. Are you willing to disclose important business information to a buyer who is a potential competitor, without requiring him to keep the information confidential and not use it against you? Do you want everyone, including your competitors and customers, to know that you are selling your business? Call us to get a non-disclosure agreement (NDA) before you start talking to anyone about selling your business. Don’t use a form NDA; not all NDAs protect you, and many forms are flawed. We know NDAs.

10. Don’t take the first offer you get! A lack of planning can force a business owner into feeling that he has to take the first or only offer received. Don’t let yourself be forced into this position; if you do, contact us immediately so we can help you negotiate from a position of control, not desperation.

Do you have questions about employee loans or compensation issues? Schedule a planning meeting with Phil Glasscock by calling 480-941-4359, or email jpg@jpglaw.com.