Buying / Selling A Business

First Step to Buying and Selling a Business

Some of the most important decisions in buying or selling a business are made in the early stages that affect the entire merger and acquisition process. This initial buying or selling process includes the amount and form of the purchase price, the net financial benefit to the seller and buyer, and the timing of the closing. Both buying and selling parties would benefit from hiring a professional advisor such as an attorney, a tax accountant and a banker/broker.

Whether you are buying or selling a business there is a general timeline of events that must be followed.

  • Pre-letter of intent period
  • Letter of intent
  • Purchase agreement & interim period
  • Closing period
  • Post-closing period

Determining the Value of a Business

One of the main things that an owner wants to know if they are deciding to buy or sell a business is how much it is truly worth. Determining the value of a business involves several different factors. One thing to consider is whether or not fair market value is an accurate determination of the value of the business. This would be the amount for which the property would be sold in a voluntary transaction between a buyer and seller. This will include adjusting the financial statements or income tax returns to truly reflect the financial position of the business. This will help to determine what the true market value of that business is. Determining the value of the business also includes obtaining all the necessary legal documents for that business as well as any history, operations, profitability, policies, industry or assessments information that pertain to the business.

Tax Savings Strategies for Buying or Selling a Business

So you have decided to sell your business, you even have a buyer lined up. Now you have tax considerations to contend with. There are two major tax considerations that apply to all sellers. The first one is how your income is taxed. This may be as personal income or capital gains. The other consideration is when income is earned. There are methods for structuring payments that can help the buyer and seller come to a mutually agreeable payment structure for tax purposes.

Structuring and Drafting Agreement for Buying and Selling a Business

Every transaction involving buying and selling a business involves structural considerations. Tax and other consequences have an important effect on the overall value of the business. The type of business owned by the seller, the size and date of the transaction, and the type of consideration paid may all have a bearing on the tax consequences. Tax law is constantly changing, so it is important to seek legal and tax advice in determining the best way to structure the purchase or sale.

When you're in the process of buying or selling a business, it is mandatory to write up a purchase agreement at some point. It is a mutual understanding between buyer and seller about the purchase price and negotiating points. It is important to seek legal advice during the process to help draft this agreement for selling your business. The agreement needs to be thorough and complete or else issues may arise during the buying and selling process. The purchase agreement can be relatively straight forward, but in particular circumstances, a purchase agreement can become immensely complicated because of the interwoven nature of the various “building blocks” of the agreement.

Contract Negotiation Strategies for Buying and Selling

The first step of the buying and selling processes, which involves making and evaluating offers, is in most cases the most critical stage of the transaction process. Unfortunately during this part of the buying and selling process lawyers are generally not included. The contract negotiation includes any transaction that has as its primary goal to influence the written agreement concerning the buying or selling process. Often, the contract negotiation handles issues such as value, timeframe, and whether there are any special considerations to take into account.

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