Brokering, Buying, or Selling a Business
When a business is being bought or sold, the sale can include the land and building the business occupies, or the seller may be retaining ownership of the land and building and selling only the going business.
The going business is often referred to as a “business opportunity”. I will focus just on the business opportunity aspect of the transaction.
Putting together the purchase or sale of a business is a challenge for many reasons. With real estate, title insurance is available. First, and most important, there is no title insurance for sales of businesses. The buyer must do due diligence to confirm that the seller owns what he is selling.
Next, a business opportunity has more moving parts than a simple real estate transaction. Some of the additional components are as follows:
If the seller does not own the land on which the business is situated, there will be a lease, which must be dealt with. A lease can be assumed with or without release of liability for the seller. If the lease is expiring, a new lease must be worked out.
The business includes inventory. The sale price is often X dollars plus the value of the inventory. The time and method of doing inventory must be spelled out, and there must be agreement as to whether inventory is valued at cost or below cost by a certain percentage. The buyer sometimes has the right to decline to purchase certain classes of inventory, such as old inventory or inventory which is not readily saleable.
Generally there is a down payment of part of the purchase price with the seller carrying the balance. Of the buyer may be able to pay all cash, perhaps by getting private financing, an SBA loan, or some other financing. The buyer might obtain new financing for part of the cost and carry back part of the balance in second position, which is more risky for the seller. There might be extra collateral given, which is called side security.
I could go on and on.
I have structured and closed scores of business opportunity transactions. I am available to work with brokers, buyers, and/or sellers to get these transactions set up properly so there will be a clean closing.
Brokers who lack experience with business sales might bring me in as a co-broker, with part of the commission going to me at closing. I a licensed not only as an attorney but also as a real estate broker. This does not necessarily have to cost the listing brokers anything. The seller might agree on an increase in the commission sufficient to cover my fee. Naturally, I charge more if I am going to be paid only if the transaction closes than if I am charging the buyer or seller by the hour.
If you are a buyer or seller and you have been lucky enough to find each other, I am also available to help you structure your transaction and get it into escrow. I can work for buyer or seller but not for both.
James Robert Deal, Attorney
Broker with Madison Partners
WSBA # 8103, DOL # 39666
James at James Deal dot com