How to Transfer Business Ownership
There are over 32 million small businesses in the United States. Many businesses enter and leave their respective industries each year, but there are also times when people transfer ownership to another party. Closing a business doesn’t have to be a negative experience – it can allow you to cash out and enjoy your years of hard work.
We’ve put together a brief guide on how to sell a business the right way. Let’s explore how to transfer business ownership.
Determine Your Needs
Before you transfer ownership, it’s essential to understand your needs. You should properly appraise your company before moving forward.
You can then figure out an asking price when you sell. It’s worth being open-minded when it comes to negotiation.
Consider more than the dollar amount the other party offers. For instance, someone who purchases your business may want you to work part-time at the company for two years to help get everyone else up to speed. If this isn’t something you’re comfortable with, it’s best to negotiate with them or find other buyers.
Consider Your Business Structure
Your business structure will affect your transaction. It does so in operational, financial, and legal ways. Let’s explore some of the most common business structures.
Sole Proprietorships
Many people run a business as a sole proprietorship. This is a company that has a single owner, but it operates differently from other business entities.
You can’t directly sell a sole proprietorship, but you can sell the assets you own. You can also sell rights to your liabilities. An example could be someone who owns a successful clothing brand as a sole proprietorship.
He’s ready to sell his assets and move on to other projects. In this case, he would appraise his business assets before looking for a buyer.
LLCs
An LLC is a limited liability company that is meant to protect the business owner’s assets during a lawsuit. Limited liability companies are a bit more complicated than sole proprietorships.
Using the above example, let’s assume that three people own the same clothing brand. Instead of selling the business outright, an owner who wishes to leave the brand could sell their stake to the remaining owners. The LLC would then draw up a new operating agreement that excludes the former owner.
Partnerships
Business partnerships are subject to state regulations, so you’ll have different requirements depending on where you’re located. In a partnership, someone who wants to transfer ownership would allocate their ownership stake to the remaining owners.
If an owner of the aforementioned clothing brand wants to transfer ownership, they may be entitled to business capital and income per the operating agreement.
So, even though they’re leaving the company, they can still benefit from receiving income and capital shares for a predetermined time. After the owner departs, the operating agreement will be updated to reflect ownership by the remaining individuals.
Incorporations
Companies can be either a C corporation or an S corporation. In both entities, ownership is determined by the number of shares owned. This is measured as a percentage.
To transfer ownership, you will need to transfer shares to another party. These can be gifted, bequeathed, or sold. Legally, an S corporation cannot have more than 100 shareholders.
If the transfer of shares would create more than 100 shareholders, the transfer of ownership would be prohibited in this scenario. In some cases, owners may need to seek approval from other shareholders or a board of directors if they want to transfer ownership of their shares.
It’s best to work with an attorney in situations like these so you can maximize your gains and minimize your tax liabilities.
Let’s assume there’s a business with three owners who equally split 900 private shares. One owner could sell their 300 shares to the remaining members before leaving the company.
Choose the Best Transfer Method
The best method will depend on the above factors. For instance, you can’t outright sell a business if you’re only a part owner.
Similarly, you might not be able to sell your company shares if the board of directors doesn’t approve. In most scenarios, though, the transfer of ownership doesn’t have many obstacles.
Getting Started
To get started transferring ownership of your business, it’s best to work with a professional. They have the experience necessary to get you the best results.
When searching for someone to hire, keep an eye out for what other clients have had to say about their experiences. Look for mentions of the professional’s timeliness and the results they got.
Consider how communicative they are, as well. It should be easy to get in touch with them, and they should be willing to help you reach your goals.
Ask about their pricing structure so you can understand what you’ll need to budget for. You can think of this as an investment into your future, as they can help you get the most money out of your business transfer.
You should also get in touch with an attorney. This will help ensure you don’t make mistakes that can lead to legal issues.
Understand How to Transfer Business Ownership
Finding the appropriate party to sell your business can determine whether you get the outcome you desire. As long as you understand how to transfer business ownership the right way, you’ll avoid many issues you may have otherwise encountered.
From here, you can get started toward your next venture or enjoy your retirement from business ownership. Book a consultation today with our professional team at Fusion. We have the tools and resources to guide you through the process.
Read MoreFour Questions to Ask Yourself Before Purchasing a Business
Truly understanding a business is much like understanding the condition of a car. It is necessary for a skilled mechanic to “pop the hood” to access the true condition of a car. In much the same way, you and your team of experts need to “pop the hood” of the business in order to understand the business’s long-term health and viability. Here are four things to consider before signing on the dotted line.
Will You Enjoy the Work?
Owning a business, especially if you are planning on being an owner-operator, can be a demanding path. You will likely have to log many hours, especially in the beginning. For this reason, you’ll want to select a business that you will enjoy owning.
Life is too short to own a business that you would not want to be involved in. Importantly, if you do not like the business you own, the odds of facing burnout and losing interest are higher. It goes without saying that these kinds of obstacles can dramatically harm your business. Think long and hard before selecting a business to buy, as it is a decision that you will have to live with for years to come.
Did You Examine the Business Plan?
A second factor to consider is that there is no replacement for a good business plan. When you are considering buying a business, you’ll want to dive in and understand every aspect of the current owner’s business plan. If the business plan has major holes or just doesn’t seem to be adding up, you should move on.
Do You Understand the Financials?
Similar to understanding the particulars of a business’s business plan, it is also critical that you have a very precise and clear view of a business’s financials. You should look over everything from profit and loss statements to tax returns and more. It is a smart idea to consult your accountant and a brokerage professional regarding what financial documents you should review. Before you buy a business is the time to understand every small detail of a business’s financial health, not after.
How is the Business Performing?
A fourth factor to consider when evaluating a business is the business’s overall performance. It is possible for a business to have a good business plan (at least on paper) and strong financials and yet it could still have a less than stellar future. Oftentimes, the true health of a business lies beyond the business plan and the current financials.
You’ll need to know about a wide variety of factors including how vulnerable the business is to competition, changes in market forces, the status of key management and employees, the relationship with key suppliers and customers, and any pending litigation. When buying a business, you simply can’t afford to overlook any area.
If you keep an eye on these four key areas, and work closely with experienced professionals like business brokers or M&A advisors, your odds of finding the right business for you will skyrocket. Owning a business that you love will greatly increase your chances of success, so don’t underestimate the emotional factor in the equation.
Copyright: Business Brokerage Press, Inc.
Jirapong Manustrong/BigStock.com
The post Four Questions to Ask Yourself Before Purchasing a Business appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
Take These Steps Before Buying a Business
If you’re buying a business, you might be feeling overwhelmed about all the details that are involved, especially if it’s your first business. Buying a business is certainly no small task, and that’s why you’ll want to dive into the process headfirst and make sure that you’ve carefully examined the business.
Here are some of the most important elements to consider. While some of these aspects don’t immediately come to buyer’s minds, they should be high on your list of considerations.
Legal Documents
Reviewing legal documents might not seem like the most enjoyable task, but this activity should be one of the first things you will want to do before buying a business. Most worthwhile businesses will have a long list of legal documents to show, ranging from documents showing trademarks and copyrights to consulting agreements.
Tax Documents
When it comes to paperwork, tax documents are obviously also a necessary element to review. Some things that you should be watching for are forms that do not adhere to the IRS rules. It goes without saying that you don’t want to be the one taking responsibility for a previous owner’s error.
Business & Retirement Documents
The list of documents you’ll want to review doesn’t end there, as you’ll also want to check into retirement documents such as balance sheets, investment statements, and income statements. You’ll want to ensure that all of the qualified and non-qualified retirement programs run by the business are up to date. You might need to check the parameters of the Department of Labor’s rules.
Work with a Business Brokerage Professional
Your business broker or M&A advisor will take you through the due diligence process to help you make sure that all aspects of the business have been reviewed thoroughly before you sign on the dotted line. Be sure to work with an experienced individual who is proactive when it comes to making sure all of your questions have been answered to your satisfaction.
The items on your to-do list might seem overwhelming at first, but remember that a lot of focus and effort now will save you a ton of hassles and issues later. And you might end up dodging a bullet by spotting a serious issue that causes you to change your mind about a business. Always be sure to protect yourself and your best interests.
Copyright: Business Brokerage Press, Inc.
The post Take These Steps Before Buying a Business appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
Difference Between an Asset Sale vs Business Sale
Ka-BOOM! That’s the sound of your mind about to explode with the revelations of what makes an asset sale different from a business sale.
You might be a small or medium-sized business owner in the St. Louis metropolitan area. Your business could be in St. Charles County, St. Louis City, St. Louis County, or even the Illinois side known as “Metro East.” Wherever you are, you might be mulling over whether to sell your business or just a part of it.
Whatever the reason, understanding the ins and outs of these two distinctly different paths (asset sale vs. business sale) can be a total game-changer. And the best part is: this unraveling of the asset sale vs. business sale conundrum is going to empower you to navigate the sale process with absolute confidence and savvy.
Let’s dive into the world of business sales, asset sales, and the magic that happens in between.
An Amicable Introduction to Asset Sales
So, what is an asset sale? Glad you asked.
Picture your business as a delicious St. Louis-style pizza. An asset sale is like selling off the individual ingredients like the fresh mozzarella, the tangy sauce, and the crispy crust, but not the secret recipe or the entire operation.
The assets you sell could be tangible, like your equipment, inventory, or real estate. They could also be intangible, such as your customer lists or intellectual property.
Each of these assets is like a piece of your business puzzle. By selling off these pieces, you can lighten your operational load or even get some quick cash influx.
Here’s a fun fact for you: The Metro East area of St. Louis, with its bustling business scene, is a hotbed for asset sales. Whether you’re looking to sell a well-loved pizza oven or a coveted customer list, there’s likely a buyer out there in Metro East willing to snap up your assets.
The Nitty-Gritty of Business Sales
Now, let’s flip the coin and explore the realm of business sales. Unlike an asset sale, selling your business means you’re selling the entire operation. It’s like selling not just the pizza ingredients but the secret recipe, the oven it was baked in, the restaurant it was served in, and even the sign on the front door.
In a business sale, the buyer acquires everything that your business encompasses: the business name, your customer list, your equipment, and more. They’re buying your entire operation, including your brand reputation and all the hard work you’ve put into building your business.
This can be a monumental decision, especially in the vibrant business landscape of St. Louis City and County, where your business might be a beloved local institution. It’s like passing on your legacy, your mark on the world, to a new owner who will hopefully carry on with the same passion and dedication as you have.
What Does This Mean for You?
Diving into the realm of buying and selling businesses, understanding the distinction between asset sales and business sales is like knowing the difference between a single slice of pizza and a whole pie.
An asset sale can provide you with a chance to streamline your business, focus on what you do best, and potentially keep more of your earnings. It’s like selling off excess dough and unused toppings to make your pizza operation more efficient.
If you’re operating in an area like St. Charles County, where business growth is booming, an asset sale might just be the smart move you’re looking for. It’s a strategic way to lighten the load while keeping your business running smoothly.
But what if you’re ready for a more significant change? That’s where a business sale comes into play.
This all-inclusive sale allows you to fully step away from the business and begin a new chapter, whether it’s retirement or a new entrepreneurial venture. It’s like closing down your pizza shop and handing over the keys to someone new, allowing you to focus on your next great idea. Franklin County, with its promising business atmosphere, could be an ideal place for such a transformative move.
Key Factors to Consider
Having covered the basics, you might be pondering which option aligns with your business goals. The answer, like a pizza with the perfect balance of cheese and sauce, depends on a few key factors.
Firstly, your future goals play a crucial role. Are you aiming for a relaxed retirement, or are you just interested in shedding some of your business assets to focus more on your core competencies? Your end-game vision should guide your decision.
Next, consider the current market conditions. In the St. Louis metropolitan area, are business sales thriving, or are asset sales more prevalent? The market climate can greatly influence which route is more profitable and feasible for you.
Lastly, the specific circumstances of your business cannot be overlooked. For example, if your business has a significant amount of debt, an asset sale could be a more practical choice. On the other hand, if your business is flourishing with a strong reputation and loyal customer base, a business sale could fetch you a more substantial price.
These considerations, among others, should be carefully evaluated as you weigh your options and prepare for your next big business move. And if you’re selling your business, you should always consider local and reputable brokerage services.
The Endgame: Asset Sale vs. Business Sale
As we bring this enlightening journey to a close, remember that whether you decide on an asset sale or a business sale, the choice is yours. No one can tell you which is best; only you can make that call.
So, whether you’re operating in the heart of St. Louis City or the thriving business scene of Metro East, arm yourself with this newfound understanding of the asset sale vs. business sale dichotomy.
Are you looking to sell your business in one of the areas we’ve mentioned in this article, or even further afield? If so, click here to learn how our experienced team at Fusion Business Services can help you do it well!
Read MoreWhy You Should Address Your Company’s Weaknesses Head On
By spotting your company’s weaknesses you can take steps to remedy them and improve operations, however, this is only the beginning of the benefits derived from spotting these types of issues. You should be the world’s foremost expert on your company and the investment that it represents. Identifying and repairing any negative issues will pay dividends both today and potentially for the life of your company.
There are many areas of weakness that companies may experience. In this article, we’ll look at a few of the key areas that many share
Workforce Issues
An area of business weakness that is receiving a good deal of well-deserved attention in recent years are problems related to the workforce. Workforce headaches are varying between industries and sectors. It has been well documented that young people are not entering trades in the numbers needed to replace retiring workers. This is a fact that is causing significant headaches for many businesses. An aging workforce will impact some businesses more significantly than others. Understanding the labor situation as it pertains to your business is a critical move for any business owner.
Overreliance
Being overly reliant on any one supplier, customer, product line or even employee or group of employees, may have an impact on your business in a number of ways. Supply chain interruptions, disruption to income and cash flows, labor shortages and a diminishment in the perceived value of your business by future buyers are just a few of the issues you may encounter. Diversification isn’t just a smart way to handle one’s portfolio, but is also a smart way to address your business plan. If your business is overly reliant in any one area, it is a good idea to measure the risk vs. reward and seek out ways to diversify if necessary. Your business will be stronger and worth more in the end.
General Industry Decline
Nothing lasts forever. Once upon a time, the country’s landscape was littered with Blockbuster Videos, but today Blockbuster Video has joined the vast and great technological dinosaurs of the past.
There is no escaping the fact that industries change. Being on the tail end of that change without a transition plan to meet new and potentially more profitable opportunities is not a good place to be. One of your key jobs as a business owner is to identify issues and problems within your industry and adapt, ideally ahead of the competition. Part of this adaptation may ultimately include knowing when it is time to exit your business entirely.
Business brokers and M&A advisors specialize in helping business owners spot weaknesses and then strategize to make significant improvements. The world of business is changing and evolving faster than ever before. Engaging with experienced advisors who can help you navigate this flurry of ongoing change could spell the difference between success and failure; while greatly improving the value of your business, rewarding you handsomely in your retirement.
Copyright: Business Brokerage Press, Inc.
The post Why You Should Address Your Company’s Weaknesses Head On appeared first on Deal Studio – Automate, accelerate and elevate your deal making.