Jeff Sheldon. (n.d.) Retrieved from https://ununsplash.imgix.net/photo-1416339684178-3a239570f315?q=75&fm=jpg&s=c39d9a3bf66d6566b9608a9f1f3765af. Creative Commons Zero
Jeff Sheldon. (n.d.) Retrieved from https://ununsplash.imgix.net/photo-1416339684178-3a239570f315?q=75&fm=jpg&s=c39d9a3bf66d6566b9608a9f1f3765af. Creative Commons Zero

As you prepare to sell your business, you will be drawing on others to assist you. Your accountant will be helpful in many areas, including providing past financial statements, old tax returns and listings of assets. Clearly, you will need legal help to draw up sales agreements.

Determine which assets are for sale. This may sound obvious but a small business owner may want to keep certain assets and exclude them from the sale. A particular desk, antique mirror or company car may appear to the buyer as included in the sale. It is very important that you be explicit about what is excluded from the sale and document these items early on in the process.

Listing assets included in the sale is a necessary step as is establishing a replacement cost. The assets are listed on the balance sheet and may include investments, accounts receivable, inventory and fixed assets. Investments including common stock and bonds can be valued by your accountant and are likely updated at year-end. An aged accounts receivable listing can also be prepared by your accountant. The allowances for doubtful accounts needs to be reviewed to confirm it is realistic and reflects the credit policy in place.

Inventory that turns over quickly should have a value close to replacement while inventory that has sat on the shelf may be obsolete and of little value. Consider disposing of obsolete inventory as it has a hidden cost of storage, security and insurance. An inventory listing and value is often prepared by the staff and updated each year-end. A final inventory list is needed when a sale is completed.

The fixed assets include land, building, and machinery. Any vacant land owned by the business will need a value established by a professional property assessor. Land and buildings owned by the business will also need to be appraised if they are included in the sale. The machinery and equipment will also need to be inventoried and a replacement value established. You may require a professional advisor to complete this evaluation.

Leasehold improvements and leases will need to be examined. You will also need to discuss a potential sale with the lessor. Any impediments to a new owner taking over the existing lease must be discussed and resolved.

On the liability side of the balance sheet, the current liabilities need to be examined. Bank loans, leases and accounts payable are reviewed to confirm they are due within one year. Long-term liabilities including mortgages or other debts are also reviewed.

Often a company has goodwill on the books. The value may have been established at the time the business changed hands. When a purchase price is higher than the combined net book value of the assets, goodwill is the balancing figure. In the event that a buyer is not willing to pay for goodwill, then an expense should be considered to remove the goodwill. The accountant may be able to help with an adjustment.

Any warrantees from the sale of products may have a future cost associated with them. A provision on the books should be sufficient based on previous claims for warrantee. The accountant can review the history and determine a reasonable allowance.

A business has the capacity to borrow money. A discussion with the banker will determine the maximum the business can borrow. The bank will secure the loan with assets held by the business as well as a personal guarantee of the new owner.

A lawyer will be consulted to draw up the letter of intent to purchase the business, which the company lawyer will want to review. The actual agreement to purchase will also be reviewed by the company lawyer to confirm intention and protect the current owner. Any pending litigation will need to be disclosed by the company lawyer. If you, as the current owner, are willing to help with the financing, then the company lawyer will be needed to draw up a suitable agreement.

Clearly there are many documents to organize, update and understand. While a business owner could take on this work it would likely distract from the day to day running of the enterprise. For this reason, most owners elect to hire a professional broker to handle the listing, help establish the most likely sales price and maintain confidentiality during the sale.

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