South Florida Business Sales: Know What is Typically Included
All business owners should be aware of what to expect when it comes time to sell their business. A key aspect of what to expect includes understanding what is or is not included in the sale. This way the seller will be armed with the correct knowledge and expectations during the negotiation process, thus resulting in the best possible purchase price while avoiding any unpleasant surprises. Let’s explore the usual issues of what is or is not included in South Florida Business Sales.
The Business Entity Itself Typically Not Included in Business Sale
- Most business sales are called asset purchases.
- That is why the typical business sales contract is titled an ‘Asset Purchase Agreement.’
- In an asset purchase deal, the buyer forms their own corporate entity (such as a corporation or a Limited Liability Company) and purchases the assets (both tangible and intangible) of the corporate entity which is selling the business.
- The seller’s corporate entity is usually abolished after the closing, and is of course not purchased by the buyer or included in the sale.
- The usual buyer will not want anything to do with the seller’s corporate entity because of the possible legal, tax, or business liability and as such it is not included in the deal.
- In a stock purchase deal the buyer individually purchases the shares or units of the seller’s corporate entity.
- It should be noted that the name of the business (which can be a fictitious name) is typically included in a business sale as part of the intangible assets that is owned by the seller’s corporate entity.
Cash/Accounts Receivables Often Not Included in Palm Beach Business Sales
Generally speaking, all of the physical assets and intangible assets are included in the sale, subject to any exceptions as outlined in the governing purchase contract. Typically the cash and accounts receivables of the business (part of the working capital of the business) is excepted from being included. Simply put, the buyer is simply expected to incur their own working capital needs and the seller expects to keep what he or she rightfully earned from the business.
Parties May Need to Negotiate Disposition of the Cash/Accounts Receivables
In some instances, the buyer may request or even insist that the cash or accounts receivables remain with the business after the closing. Indeed, in stock purchase deals, such assets legally remain with the seller’s corporate entity (which thus becomes the property of the buyer) after the sale. The parties may thus need to negotiate the disposition of the cash and accounts receivables in the sales contract. This is often the case in the sale of healthcare businesses, for example the high working capital needs of the business often means that the buyer will insist that the accounts receivables stay with the buyer after the closing.
Inventory Often Sold Separately in Sale of Retail Businesses
- A company’s inventory (or saleable items to customers) may consist of a substantial amount of the value of a business, especially with retail businesses.
- In such instances, the inventory is usually not included in the asking price of the business.
- Rather it is sold separately (concurrent with the sale) and the value is jointly determined by the buyer and seller immediately before closing.
- In the sale of a convenience store, for example, the business itself may sell for $100K but the inventory may sell for $50K.
Seller Typically Includes Free Training Period in the Business Sale
In many businesses, the owner’s role is of critical importance to the success of the business. As a part of the asking price, a seller will usually offer to give around 30 days of free training to the buyer after the closing. The free training usually includes working regular business hours on behalf of the buyer under mutually acceptable terms as outlined in the purchase agreement.
After Free Training Period, Seller Must Get Paid
After the free training period expires, the buyer may want the seller to continue working in the business. If a seller’s role is truly instrumental in the business, then a buyer will be especially keen to keep the seller around for as long as possible. In such a case, the buyer will need to hire the seller on mutually acceptable payment terms. This employment agreement may or may not be fleshed out ahead of time in the purchase contract. It all depends on what the buyer desires. But in no circumstance should any seller be feel obligated to work ‘for free’ after the free training period expires.
Give Martin at Five Star Business Brokers of Palm Beach County a call today for a FREE evaluation of your business.