Preparing to Sell a Small Business

  • Published: February 15, 1999
  • By Bardin Levavy

Most small business owners are too busy building and maintaining businesses to devote much time or energy to planning for their disposition. The difficulty with this approach is that the decision to sell the business is often made under circumstances, such as physical or fiscal illness, “battle fatigue,” or other circumstances which require a prompt disposition. As a rule of thumb, the more promptly the business has to be sold, the less likely it is that the owner will receive a price commensurate with the asset he is selling—and for many of us our business represents the sum of a life’s effort.

The disposition of business interests, particularly of family or other closely held business interests, is a multi-faceted endeavor, presenting far too many issues to discuss in an article as short as this. But here are some basic considerations:

1. If the business is to pass between generations of the same family (i.e., from parent to child), transfer should be arranged to minimize two very different, but equally important, aspects of the transfer—the minimization of taxes and the smooth transition of management between one generation and the other. Experience indicates that the transfer of management, if not handled properly and with foresight, is the bigger problem of the two, and is certainly the one more threatening to the business.

2. If the business is to be transferred to an unrelated third party in an arm’s length transaction, considerable forethought and effort must be given to the timing of the sale—what may be thought of as the “arc” of the transaction. How long before the time of actual sale should the owner prepare for the transfer? Is the business of a type which may be particularly ripe for sale at a particular time?

What is certain about the process is that when it comes to attending to the planning of the sale of a business, more is better than less. More information is better than less. More options is better than fewer.

The greatest single problem is knowing when to leave. This tends to be a problem for which objective criteria are not helpful. However, consistent with the idea that planning is good, it is important for a small business owner to take constant stock of where the business is, what its objectives are, and whether present management has the emotional energy to maintain it or to raise it to a higher level. Only objective self-examination—often with help from close friends—can provide a working answer.

Attorneys and other professional advisors have an important role to play in the process. They can give helpful advice about the structure of the transaction and even about valuation. Occasionally, they can even introduce the buyer to the seller. We know. We’ve handled these transactions from all sides.