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Selling closely held businesses

| Jun 10, 2021 | Buyout Agreements

Starting a business is extremely hard and complicated, but it is a worthwhile endeavor. Indeed, the wealthiest among us go there by building their own businesses. But, many, if not most businesses, are not those large publicly traded companies, but instead, smaller closely held businesses. Though, these businesses can be extremely valuable, which is why successful closely held businesses can be very lucrative for both the seller and buyer.

Business valuation

Sound planning is key to the successful sale of a closely held business. And, the first, step is valuing the business. After all, one does not want to undersell their own business. A business valuation can be done by an appraisal from The Appraisal Foundation, an attorney or they can do it themselves. A business valuation includes all the property the business owns, including the real estate, products, office equipment, office furniture, etc. The valuation should also include the businesses intangible assets. These include intellectual property, brand presence and goodwill, customer information and projected future and past revenue.

Common valuation methods

One of the most common valuation methods is the income approach, which is the one often used on TV’s, Shark Tank. This method utilizes the businesses projected revenue and potential and actual liabilities. Another common valuation method is the market approach, which attempts to compare one’s business with another similarly situated business that recently sold. This is similar to how home appraisals are done. Yet another approach is the assets approach, which is the most “by the numbers” approach. Under this method, one simply subtracts the total business liabilities from the total asset value.

Sales agreements

Once an offer is accepted, the next step is to make a sales agreement. This document must be prepared according to the business formation agreements, and an attorney should at least review it. Though, preferably, they should actually draft it to make sure that it is legally enforceable, comprehensive and accurate. The sales agreement should include everything, along with a listing of all the inventory and the entities involved. It should outline the nature and structure of the deal and note any adjustments to the sale price, like broker fees. While this is only a quick rundown of selling a closely held business, readers can quickly see that an attorney is really needed for New York, New York, closely held businesses.

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