Tips for Selling a Business in California

If you are an entrepreneur, selling your business is one of the biggest decisions you will ever make. Whether you want to retire, try other opportunities, or cash out, it is vital that you prepare thoroughly for the sale of your business. Preparing can help you avoid pitfalls and maximize the value of your business. It can help you ensure a smooth transition.

In California, selling a business involves more than finding a buyer and signing paperwork. There are several strategic steps you must take. Below are some key tips to guide you through the process of selling a business in California.

1. Get a Business Valuation

Before putting your business on the market, it is vital that you know its actual market value. Get a professional business valuation from a certified appraiser or valuation expert. Before you sell your business, you want to ensure you understand its true worth based on, among other things, revenue, assets, intellectual property, and market position.

2. Put Your Finances in Order

One of the key factors people look at when buying a business is the business’s financial records. Buyers closely evaluate financial documents to judge profitability and stability. Accurate and current books that comply with the law also indicate that your business is run professionally. Well-organized financial records can reduce a buyer’s due diligence concerns.

3. Review Legal Documents

One vital step in selling a California business is examining legal documents, including leases and property agreements, permits and licenses, employment contracts, and client and vendor agreements. Ensure agreements and contracts are up-to-date and transferrable, and you seek third-party consent where necessary.

4. Decide Between Asset and Stock Sale

When it comes to selling your business in California, a significant decision you will face is deciding whether to structure the transaction as an asset or stock sale. With the former, the buyer purchases individual business assets, such as inventory, equipment, and goodwill, instead of the whole entity. On the other hand, a stock sale involves the buyer purchasing the ownership shares of the business entity and assuming control of the company, including its assets, liabilities, and obligations. Most small business sales in California are structured as asset sales. Stock sales are more common with corporations and involve more complex legal issues.

5. Prepare a Professional Sales Package

Create a clear and compelling package that highlights your business’s strengths. Highlight financials, operational details, and areas of growth. A professional sales package can help attract serious buyers and ensure a smooth due process.

6. Approach Negotiations Carefully

When negotiating offers, don’t just focus on the buying price. Assess other crucial factors such as when payments will be made, contingencies, and any ongoing involvement you might have. A qualified business attorney can help you manage negotiations effectively.

7. Understand Tax Consequences

The sale of your business can result in substantial tax liabilities. Consult a tax advisor familiar with business sales to understand the tax implications of selling a business. A tax advisor can help you structure the sale in a way that reduces your tax exposure.

8. Carefully Draft a Sale Agreement

The sale agreement should carefully outline all transaction terms, including payment, liabilities, and closing conditions. Work with a skilled California business attorney to ensure your agreement is legally sound and protects your interests.

Contact Us for Legal Help

Contact our skilled business attorneys at SAC Attorneys LLP for help selling your California business.