Change of Ownership Considerations

The current form of your business is important to the buyer.

  • If your business is a Proprietorship, you are likely selling the assets, collecting the accounts receivable, and paying off the liabilities.
  • If your business is a Partnership, you need to determine the impact a new partner will have on the existing partners. In this case, you will be selling your share of the business.
  • If your business is a Limited company, you will be selling either the shares or the assets, and perhaps net of any receivables and payables.
Joshua Earle. (n.d.) Retrieved from Creative Commons Zero

Joshua Earle. (n.d.) Retrieved from Creative Commons Zero

The form of your business and its sale may have ramifications on retention of employees, customers, and suppliers. Employees become nervous when a business sale is being considered as fear of the unknown is natural. Customers may also become concerned as they want to continue buying the same products and would prefer not to change companies. Suppliers need long-term customers for their products and a change may be unsettling. Competitors may also be interested in attracting your existing customers.

Selling your business will be based on finding an individual that you believe will fit well with the existing culture. Ideally, this will be someone that you like and recognize has the necessary skills to build your business. The relationship between the buyer and seller needs to be strong in order to give the best chance for a successful transition in the long run.

An astute purchaser will have many questions for the seller that are worth examining beforehand. The most important question will be: Why is your business for sale? Have your answer ready and be specific with your reasoning. A motivated buyer and seller are required to complete any transaction. Often the purchaser will want to talk to the employees and your permission is needed. Realize that the buyer will want to confirm what you tell him about the culture of your business.

Another issue to consider is the level of assistance you are prepared to offer the buyer. This is often a key part of the negotiations as the buyer will want to fully understand the unique aspects of the business before the seller departs.

Early on, the buyer will want to know the financial aspects including existing obligations and collateral used for loans, lease commitments, contracts with customers, suppliers, and employees.

Finally, the buyer will want to know how you determined the price of the business. Having multiple copies of the revenue business valuations is a frequently used strategy. Having a non-disclosure document prepared ahead of time will keep you organized and professional when dealing with potential buyers.