Tips To Maximize The Sale Of Your Business
By Steve fitzgerald, Mon Jan 2nd

Question: How can I maximize the amount of cash I receive when Isell my business? Answer: Acquire every last after tax dollarand get paid in cash. Also, follow three critical steps beforeproceeding:

1.Preplan the sale of your business. This should not be a spurof the moment decision. Rather, it should be well planned inadvance. Though it is not possible to control the externalenvironment, such as interest rates and strength of the economy,it is possible to plan for an orderly transition. Start thinkingabout some obvious sources for a potential buyer. For example,should an employee be groomed for possible succession? Might agood customer be interested in acquiring your business in theevent of its sale?

2.Recognize the importance of finding the right buyer. Mostbusinesses don't have a value that is set in stone. Instead theyhave a range of value. This means that different buyers willhave different perceptions of the same business's value. Itbecomes important to pre-plan your confidential marketing effortto gain exposure to multiple buyers, especially synergisticbuyers. Synergistic buyers are those individuals who, because oftheir location, complimentary customer base, financial resourcesor market position, can profit more from owning your businessand are therefore willing to pay more.

3.Consider getting professional help. Unless you have abackground in taxes, legal issues and merger and acquisitionwork, you will probably unknowingly make a multitude of costlymistakes by trying to sell your business yourself. Thosemistakes may cost you substantially more than any fees paid forcompetent professional assistance. Do some homework on variousalternatives. Become informed by attending seminars regardingtax issues, estate planning, and so on. Ask your CPA or lawyerto recommend "general knowledge" seminars that might assist yourlearning curve.

Question: How do I legitimately minimize my tax obligationswhen I sell my business?

Answer: Plan well in advance by reviewing your corporatestructure on an ongoing basis. This will enable you to maximizethe amount of proceeds you retain from your business's eventualsale.

As one would expect, the tax rules make it difficult for anyquick fixes that give rise to immediate benefits. Considerchanges to structure now that may result in more favorable taxtreatment when the business is sold in five or ten years.

Start by getting up to speed on recent developments in the taxcode. Chances are the code is very different today than when youbought or started your business. So sit down with yourprofessional advisor and review your current business structureand its appropriateness for your business's eventual sale.

For example, if you are structured as a corporation, thesubstantial difference to your after tax dollars on sale dependson whether you proceed with an "asset" sale or a "stock" sale.Selling the corporation's assets can result in proceeds beingtaxed at the corporate level as well as the individual levelwhen the remaining proceeds are distributed to the stockholders.However, if the stockholders sell their stock, it is likely thatcapital gains provisions would apply. The difference this makesto retained proceeds can be enormous.

Paying our share of taxes in the United States is an economicreality of life. Yet after tax dollars in the sale of acorporation can vary between 45 percent and 85 percent of thesales price based solely on tax structuring issues. The earlieryou start planning for the sale of your business, the morelikely you will be to minimize tax obligations.

Question: When is the best time to sell your business?

Answer: The best time to sell your business is determinedthrough a careful consideration of the factors that can andcannot be controlled to maximize the amount of cash you receive.These

factors include:

Environmental/External Issues- Beyond our Control

Low interest rates and a low inflation environment with plentyof liquidity and a buoyant economy create an ideal scenario formergers and acquisitions. Clearly, we have enjoyed this scenarioin the United States over the last few years. As a consequence,there has been a flurry of activity in corporate America as wellas small business America. Well-run, sound businesses areselling relatively easily for nice multiples. Yet, as we allknow, the economy goes in cycles. If the sale of your businessis on the immediate horizon, then perhaps consideration shouldbe given to bring the "sell" decision forward in order to takeadvantage of these robust conditions.

Internal Issues-Within our Control

A potential buyer is going to pay significantly more for abusiness that demonstrates a consistent track record of growingrevenues and profitability. However, all too often a business isallowed to stagnate or even decline because the owners havetaken their foot off the accelerator. Getting "burned out" andother health issues are probably the most often cited reason fora small business owner wanting to sell. This is understandable,but also often controllable. Recognize the warning signs andtake whatever corrective action possible. Again, choosing tosell for a good price while the business is buoyant is farsuperior to forcing a sale because of health or other issuesthat have impacted revenues and reduced the business's value.

Above all, think with the head and not with the heart. Adecision to sell can be very difficult for a host of goodreasons. Most small businesses don't have boards of directorsholding management accountable. However, sometimes it is prudentto seek outside objective advice from respected confidantes orprofessionals. These individuals bring a fresh perspective andinsight that will assist you in making good strategic decisionsfor the future of your business.

Question: When a business is sold, what liabilities are thebuyer responsible for and which remain the obligation of theseller?

Answer: In general, whether it is as an asset sale or a stocksale, just remember that sellers are obligated to provide "lienfree" assets to the buyer. While all transactions are unique,buyers will typically assume liability for the following:leaseholds related to real estate, unless they are relocatingthe business; accounts payable (and if they do they will alsoget the accounts receivable); advertising commitments such asYellow Page contracts; customer deposits, provided seller relaysto buyer a like amount of cash; and any other liabilities thatare agreed upon in writing.

Sellers will typically be obligated to pay off out of the saleproceeds the following: lines of credit; installment debt and/orleases related to vehicles, computers, equipment; allobligations to employees up to the date of closing; all taxrelated matters; and all other debt that has any claim againstany of the assets that are being transferred to the buyer.

There is another issue related to liabilities. The seller isobligated to give the buyer strong "warranties andrepresentations" (guarantees) that there are no undisclosed orunknown liabilities that might create claims against the assetsbeing sold. The California Bulk Sales Law essentially statesthat a buyer can be held liable for goods transferred to him orher that has not been paid for by the seller. Obviously, allbuyers want and are entitled to protection from having to payfor the same goods twice.

In summary, it is essential that both buyer and seller commit tohaving everything in writing (i.e. no verbal agreements) andthat

About the author:Steve fitzgerald writes about SouthernCalifornia business broker.This firm has specialized inassisting owners of privately owned manufacturing, distributionand service businesses in selling their businesses.