How Hard Is It To Sell A Small Business?
Curious about selling your small business? Discover the challenges, legalities, and steps to successfully sell your business, especially in Utah, in this detailed guide.
How Hard Is It To Sell A Small Business?
Selling a small business can feel like a monumental task. Whether you’ve built your company from the ground up or you’re managing a family-owned enterprise, the process of selling involves numerous facets including legal, financial, and emotional elements. In this comprehensive guide, you’ll get insights into the complexities of selling a small business, especially within the context of Utah state laws.
Understanding the Basics
Before diving into the nitty-gritty details, it’s crucial to get a solid understanding of what selling a small business entails. A small business is typically categorized by various factors, including its revenue, the number of employees, and industry type. The essence of selling lies in transferring ownership from you to someone else. It might sound simple, but the intricacies involved make it far from straightforward.
Reasons for Selling
One of the first questions you need to answer is why you want to sell your business. There are numerous reasons why business owners decide to sell, such as:
- Retirement
- Health issues
- Desire to pursue other opportunities
- Financial difficulties
Understanding your reason for selling will influence many facets of the process, including pricing and negotiation tactics.
Evaluating Your Business
One of the initial steps in the selling process involves evaluating your business. The goal here is to determine its market value. Several methods can be used for valuation, such as:
- Asset-based valuation: This involves calculating the net asset value of your business, i.e., the total value of assets minus liabilities.
- Income approach: This method looks at the potential future income your business can generate.
- Market value approach: This is based on comparing your business with similar businesses that have recently sold in the area.
Engaging a professional valuator can provide an objective view and help avoid overvaluation or undervaluation.
Utah-Specific Laws and Regulations
Navigating the legal landscape is one of the most daunting aspects of selling a small business. In Utah, specific laws govern the sale of businesses, including corporations and limited liability companies (LLCs).
Corporations
According to the Utah Code § 16–10a-1202, selling a corporation involves several key steps:
- Board Approval: The board of directors must first approve the sale.
- Shareholder Approval: Subsequently, shareholders holding a majority of shares must also approve the transaction.
- Filing Requirements: The sale must be properly documented and filed with the Utah Division of Corporations and Commercial Code.
This legal framework ensures that all parties’ interests are adequately protected, and the sale is executed in a lawful manner.
Limited Liability Companies (LLCs)
For LLCs, the process is somewhat different but equally comprehensive. Based on Utah Code § 48–3a-709, transferring ownership in an LLC generally involves:
- Member Approval: All members of the LLC must generally approve the sale unless the operating agreement specifies otherwise.
- Documentation: Similar to corporations, the transaction must be documented and filed with the state.
Understanding these legal requirements is crucial for a successful sale. Missteps can lead to legal complications that may delay the sale or result in financial penalties.
Business Succession
Business succession planning is another critical aspect that you must consider. This is particularly relevant if you’re looking to sell a family-owned business. Under Utah Code § 75–7–204, business succession planning typically involves creating a living trust or a will that outlines how ownership should be transferred upon your death.
Working with an attorney like Jeremy Eveland can help you tailor a succession plan that meets your specific needs and ensures a smooth transition.
How Laws Protect Rights
Selling a business involves various stakeholders, and Utah’s laws are designed to protect the rights of all parties involved.
Protecting Seller’s Rights
- Non-compete Clauses: Sellers can include non-compete clauses in the sale agreement to protect their interests. These clauses prevent buyers from starting a competing business within a specified area and timeframe.
- Transfer of Liabilities: The agreement should specify which liabilities will be transferred to the buyer, ensuring the seller is not held responsible for incidents post-sale.
Protecting Buyer’s Rights
- Due Diligence: Utah laws provide buyers the right to conduct thorough due diligence, which includes reviewing financial statements, contracts, and legal compliance documents.
- Disclosure Requirements: Sellers are legally required to disclose all material information, ensuring the buyer is fully informed.
Resolving Disputes
In the unfortunate event of a dispute, Utah Code § 78B-6–801 provides mechanisms for resolving these issues, including mediation and arbitration. These frameworks are designed to offer a fair resolution without resorting to prolonged litigation.
Common Misconceptions
Several misconceptions surround the sales process, and debunking these myths can help you approach the transaction more realistically.
“Selling a Business is Quick and Easy”
Many people believe that selling a business is a swift process, but in reality, it can take several months to even years. Factors like market conditions, business type, and legal complexities can significantly affect the timeline.
“My Business Will Sell for The Asking Price”
Another common misconception is that the business will sell for the listed price. Negotiations usually involve some haggling, and the final sale price may differ from your initial expectations.
“DIY Approach Saves Money”
While it might seem cost-effective to handle the sale yourself, the benefits of hiring a lawyer like Jeremy Eveland far outweigh the costs. A professional ensures all legal requirements are met and shields you from potential pitfalls.
Practical Tips for Selling
Here are some practical steps you can take to streamline the sale of your small business.
Get Your Financials in Order
Prospective buyers will scrutinize your financial records. Ensure all your books are up-to-date, and consider having them audited by a professional accountant.
Enhance Business Appeal
Improve your business’s curb appeal by making necessary repairs and upgrades. A well-maintained business is more attractive to buyers.
Hire Professionals
Utilize experts, including business brokers and legal advisors, to guide you through the process. Their expertise will be invaluable in closing the deal efficiently and lawfully.
Real-World Scenarios
Let’s explore a couple of real-world scenarios to illustrate the complexities involved.
Scenario 1: Selling a Restaurant in Salt Lake City
Imagine you own a small restaurant in Salt Lake City, and it’s time to sell. The process involves several steps:
- Valuation: You hire a professional valuator who appraises your business at $500,000.
- Legal Compliance: You consult with attorney Jeremy Eveland to ensure all legal aspects are covered.
- Marketing and Negotiation: You engage a business broker who markets your restaurant and helps negotiate with potential buyers.
- Finalizing the Sale: After several rounds of negotiations, you agree on a sale price of $480,000. Legal documents are drawn up, and the transaction is filed with the Utah Division of Corporations and Commercial Code.
Scenario 2: Transferring a Family-Owned Business in Utah County
Suppose you own a family business in Utah County and wish to pass it on to your children. You engage with a business succession planner to create a living trust:
- Drafting the Trust: You and your lawyer draft the trust, outlining the terms of the business transfer.
- Member Approval: Since it’s an LLC, all family members must approve the transfer.
- Filing and Documentation: The trust document is properly filed with the state, ensuring a legally compliant transfer upon your death.
Engaging with Jeremy Eveland
Selling a small business involves many layers — from valuation and marketing to legal compliance and finalizing the transaction. By understanding the legal landscape in Utah, you can better navigate these complexities. Always consider seeking assistance from professionals like Jeremy Eveland, who specializes in business succession and corporate law.
To speak with a lawyer, call attorney Jeremy Eveland:
Jeremy Eveland 8833 S Redwood Rd West Jordan Utah 84088 (801) 613–1472
The information contained in this article is for information purposes only and is not legal advice. For legal advice, hire a competent lawyer in your jurisdiction.
Understanding the intricacies of selling a small business can make the process far less daunting. If you found this article helpful, please clap, leave a comment, and subscribe to our Medium newsletter for ongoing updates.
