Things to Check Off Before Positioning Your Company for Sale
There are several housekeeping items to do before selling your business.
You want to make sure the business is as transferrable as possible.
Some things you will want to do in advance while others you will postpone until you have a deal in hand.
A few things to make sure of are the following:
- Do you own? If so, is the commercial real estate necessary for the deal? Are there restrictions of any kind preventing a sale?
- Do you rent? If so, will the landlord let you out of the lease? Will they accept a buyer/tenant. I can’t tell you how important this is and you want to get ahead of this rather than try to be behind it. You do not want to line up a buyer only for the landlord to nix it. Landlords can blow deals. You want to know if you have an easy to deal with landlord or if they are difficult. If they are difficult, you might have to buy out the remainder of the lease (which could make the sale meaningless if the sale value is less than the remainder on your lease), or negotiate for a settlement. Otherwise, you might be able to have the buyer assume your lease and get a release form from the landlord upon assumption so you are not still on the hook after you sell.
- Do you have any debt on the business? If so, this might have to be cleared before the sale. Otherwise, it can be cleared from the proceeds of the sale. Depending on the state, you may not be able to sell the business (legally speaking) if there are any UCC’s filed. UCC’s are like liens on the assets/business and they have creditor rights to be paid off. Run a UCC search on the business for $100-$200. If you have any UCC’s, try to negotiate a settlement where you get a UCC removal at the minimum and a “PAYOFF” upon payment as best case scenario. If you have multiple UCC’s this can complicate a sale, because you won’t know which lender will collect on the sale, especially if the sale is a liquidation worth less than the summation of the debts. Generally, UCC goes off of first in time rights, meaning the first to file gets seniority up to the dollar amount owed. Every situation depends on whether you should pay the debt off first, or wait until the sale goes through to pay them off. You also want to avoid capital gains tax and pay the debt off directly from the proceeds/escrow and eliminate any tax gray area.
- Do you need authority or approval from anyone to sell? Such as a parent company, franchisor, or anyone else related to receiving royalties, rights, or anything else that would make you have to go through them first.
These are all things that can complicate a sale and each situation should be handled on a case by case basis. As professional business brokers, we can guide you through these navigational hurdles.
Please reach out to us if you are interested in working together by calling (800) 773-1523 or emailing email@example.com.
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Jarbly is a leader in business consulting with expertise in helping with revamped strategies, enhancing valuation, positioning for an exit, and business and real estate sales.