Business Sale Terms and Structural Factors, Part 2

In part one of this two-part blog series, we went over the basics on common business sale structural elements and terms often found in such deals. While final sale price is always a vital factor during any business sale, there are also several other potential term areas that play a big role in negotiations and the final agreement.

At Utah Business Consultants, we’re happy to assist clients with a variety of business sale themes, from long-term exit planning to specific negotiations for selling your business to a motivated buyer. In today’s part two of our series, we’ll go over many of the specific term types you’ll often find in business sales.

Seller Note

One common term area will be a seller note, which represents part of the offer that’s in note form and paid with interest over a determined number of years. These may be required in cases where third-party financing is being used by the buyer, acting as a good-faith down payment in many ways. In other situations, however, sellers will have the option to reject this approach.

Non-Compete and Agreements

In many business sales, there will be significant discussion about the seller’s actions following the sale. The buyer may offer the seller an employment agreement to keep them on with the new company, often due to their expertise and long-term relationships that will assist with keeping the business going. Salary and benefits here can be negotiated as part of the sale.

In other cases, the buyer will ask the seller to sign a non-compete that prohibits them from starting another competing business within a certain period of time. In these cases, it’s important for the seller to be sure they aren’t boxed in too much by this agreement.

Taxes, Assets and Capital

There are several term types within this realm that might be discussed:

• Taxes or asset allocations: These relate to whether the sale is a stock or asset deal, which can have a heavy impact on both buyer and seller.
• Net working capital: The difference between current assets and current liabilities – there may be clauses that certain amounts of working capital remain in the company after a sale.
• Tangible or hard assets: Equipment, inventory and other related items on-hand during the sale, which can impact value.
• Leasing assets: Some buyers may not want to buy every business asset at closing, in which case the seller may lease certain assets to reduce the closing cash required.

Stock or Future Payouts

As we noted above, some business sales will involve the seller remaining connected to the company. Such deals may involve structuring stock in the new organization as part of their compensation. In other cases, earn-outs may be added to the deal in addition to the sale price, allowing the seller some percentage of future growth if the new business has success.

For more on business sale terms and structural elements, or to learn about any of our assistance with selling your business, business valuation or related services, speak to the staff at Utah Business Consultants today.