What Are Some Important Factors In The Sale Of A Business?

What are some important factors in the sale of a business? It takes time and effort and it takes knowledge. If the perspective buyer doesn't have that knowledge, he needs to get somebody who does have that knowledge to assist him.

A financial analysis and plan are very important. The first page should be done by the month for the first year and it should be a profit and loss statement, the second year by the quarter, and the third year by the year. This is especially important in the first year because after the first month if you haven't met your projections on your business plan then you need to readjust the other 11 months and possibly the next year and the third year of the year. That's the difference between being a merchant and a shopkeeper. A merchant is somebody who understands his business financially. The shopkeeper is somebody who looks at the checkbook and says, "Well, I have money in the bank so I must be making money."


It takes time and effort and it takes knowledge. If the perspective buyer doesn't have that knowledge, he needs to get somebody who does have that knowledge to assist him. If you are going to go to a bank and borrowing any money whether it's an SBA loan or conventional loan, you are going to need a business plan in order to be able to borrow to purchase an existing business.




Going back to whether the seller should be the banker, the perspective buyer and his spouse should give him financial statements prior to his accepting a noted security agreement. Both the perspective buyer and his spouse should sign the notes and the security agreement and they should not be allowed to move their assets around without prior approval of the seller who is now become the banker. This is to ensure the safety of his being paid the note.

The security agreement is extremely important. You can't just have a note; you have to have a security agreement along with it. The way the security agreement is drawn is the single most important thing for the seller. When a person is purchasing and making an asset purchase of a business, generally speaking they insist upon the accounts receivable with recourse. The reason that they need the accounts receivable is that's the immediate cash flow coming into the business. If they allow the seller to keep the accounts receivable nothing is going to stop the seller from going to every single customer who owed him money and saying he wants his money today. Then you have lost the whole customer base because you bankrupt the customers.

So, the sale should include the furniture, fixtures and equipment, the accounts receivable, the inventory at cost or market, which ever is lower. It should include all of those things that are pertinent with business including the business name, the lease, covenant not to compete, things like that. And also it should include a time period that the seller remains with the business to help train the new buyer.

For people who have never been in business, there are free business seminars for perspective buyers offered by Score, which was formerly known as the Service Core of Retired Executives. There are also business plan seminars and financial analysis seminars.

© High Speed Ventures 2011