What liabilities does the business have? Do you intend to transfer those to the buyer? Can you? How might those liabilities impact the purchase price?
As the seller, especially if it’s a family business, you don’t want to keep any liabilities. The buyer, on the other hand, wants to limit the liabilities for which it will be responsible and to quantify every liability it will assume so that it can factor the cost into the purchase price. It also wants to be assured that the business is currently in compliance with the law, so it doesn’t buy a business that might expose it to penalties or additional costs to come into compliance.
Every business has creditors. Among others, there are suppliers, whose debts may be reflected in accounts payable; banks and other financial institutions, whose obligations will typically be secured and fully documented; and contingent creditors, such as potential plaintiffs.
How carefully are accounts payable being managed? Do you pay your bills on time? Do you pay your bills too early? Remember that your trade creditors might be considered an asset to the buyer.
Institutional credit arrangements typically have prohibitions on assignments and on changes in control. Does it make more sense to the transaction to pay these obligations off or to transfer them, assuming that can be done. Have you guaranteed any of the debt personally? Before you find a buyer, you need to determine when and how to approach these lenders.
Buyers will want to know about your current and historic litigation track record. Has your beauty business ever been sued? Is it mostly in one area (product liability or employee issues) or is it spread across different facets of your business? Think about whether your litigation history is consistent with a beauty business of your size and type, and if not, why.
Is there any reason to think that the company might be operating in material noncompliance of any laws and regulations? Are there systems in place to manage compliance obligations? Is there any history of noncompliance? Are you current with all your tax obligations?
The work you do up front preparing for the sale of your business will help you facilitate the transaction and obtain the most attractive after-tax net profit. Good luck!
This copyrighted article is intended to help make you aware of some of the issues that you may face, but it is not exhaustive and does not constitute legal advice. You should consult your lawyer for legal advice about the particular circumstances of your beauty business.
Miriam V. Gold is a lawyer in private practice in White Plains, New York. She provides advice on business law. She can be reached at email@example.com.