Buying-Selling a Business
Selling one’s business can involve an extremely high level of anxiety and mixed emotions for the client. Often that business has been the client’s identity for numerous years, maybe longer lasting than the client’s marriage or the client has owned and run the business longer than the client has had children. Sometimes, when the client is selling a business, it is the precursor of retirement – which can produce an emotionally daunting dilemma for the client.
So, it is not just the financial aspects of the buy-sell arrangement that need to be properly papered. Tax implications and tax planning permeate the different types of sales of businesses. Is it an asset sale? Are we selling stock or partnership interests? Palm Desert business transaction lawyers can help do an analysis of the dollars you will NET AFTER TAXES from the alternative ways for structuring the business’s sale.
Beyond the NET AFTER TAXES analysis, the sale of every business involves the “PTS” Rule. The PTS Rule sets out the salient point of every business sale or purchase.
Price: What’s the business worth? What should be the PRICE of the business?
Transaction: If the transaction is not an “all cash” sale, you must address the terms of payment of purchase price that exceeds the cash down payment (the interest rate; the frequency of payments; the time period over which payments must be made).
Security: If the transaction is not an all-cash sale, to secure the unpaid balance evidenced by the buyer’s promissory note, you must get security that covers whatever is the unpaid balance amount. As Sanger & Molever’s transactions lawyers can explain, often the third element of the PTS Rule, the “security”, can be far more important than the business’s sale price. The basics include (a) price, (b) terms of payment, and (c) security. However, the details within the three basics can result in significant ramifications – good or bad – down the road for your client and the client’s family. The “T” and the “S” in the PTS Rule can often be more important than the “P”, the price.
Example: X created a successful business. After 30 years in the business, with no children to take over the business, at age 70, X sought to sell the business for $3,000,000. Buyer #1 offered $2,700,000 all cash. Buyer #2 offered the full $3,000,000, but on terms: $1,000,000 down, and a ten year note for $2,000,000 secured by the business. X sold to Buyer #2 … who three years later ruined X’s business and went bankrupt. Now at age 73, “X” sits with an uncollectible note because the Buyer ran the business in to the ground . X would have been way ahead, had he accepted the lesser $2,700,000 price from Buyer #1. Sanger & Molever’s Palm Desert business transaction lawyers have advised clients that selling their businesses, involves an analysis more thoughtful than just looking at the price.
Although the three basic elements (“PTS”) of any sale are crucial, the emotional toll on a longtime owner can dwarf the financial terms. Howard Sanger and Jeff Molever business transaction lawyers have considerable experience as tax and business attorneys assisting clients selling their businesses. Howard Sanger and Jeff Molever bring their specific perspectives to assist their clients through the financial and emotional endeavor of selling or buying a family business.