As owners of successful hospitality businesses approach retirement, questions of legacy, succession, and financial planning loom large. For many entrepreneurs, funding their golden years requires selling the company and transitioning the proceeds from the sale into passive income generating assets. Selling a privately held company or family business is a sophisticated, nuanced process. The following elements are commonly addressed during negotiations in a business sale transaction.
Price - The sale price of a business is a reflection of the company’s market value determined in good faith negotiations between equally motivated parties. The final negotiated value will be impacted by the economic environment, the ability to create a robust, competitive marketplace in a confidential environment, and justification of the value to prospective buyers and their professional advisors.
Terms - Flexibility in deal structure is key to maximizing business value. Elements of seller financing and deferred compensation can significantly increase the total purchase price and deliver tax savings. A performance-based mechanism to supplement the fixed price can capture market share, intellectual property potential, and anticipated revenue growth from executive, strategic initiatives with appropriate risk allocation between the parties. Financing part of the purchase price for a qualified buyer can reduce the seller’s tax liability and open the door to more cash at closing if it supports bank acquisition capital.
Seller’s Assistance - A period of transition training to ensure a smooth transfer of operations is customarily part of a transaction. The level of post-sale engagement depends on the complexity of the business model and the successor’s needs. Support can include in-person training, virtual consulting, employment contracts, and retained equity.
Covenant-Not-To-Compete - An intelligently structured non-competition agreement will protect the buyer’s investment while preserving the seller’s ability to engage in areas not deemed to be in competition with the sold business.
Tax Allocation - In an asset sale, the purchase price is commonly allocated among goodwill, equipment, inventory, non-competition, and consulting agreements. Stock sales still have the potential for amortized assets and tax strategy. The input of tax professionals is advised to determine the best tax allocation of assets and ensure mutually beneficial tax treatment for both parties.
Timeline - Establishing a targeted closing date creates a strategic roadmap for measurable progress toward deal completion. Important key target dates to establish include satisfaction of due diligence and feasibility contingencies, legal documentation finalization, securing of financing, and receiving any necessary licensing or third-party consents.
There is no substitute for knowledge, experience, and superior skill in negotiating the sale of a privately held company or family business. IBA has sold more businesses in the Pacific Northwest than any other firm. All communication with IBA is held in strict confidence. 100% of IBA’s fees are performance based.
Additional information on IBA can be found at www.ibainc.com. Joseph Hollcraft, an ORLA Allied Partner and this blog’s author, can be reached at 503-739-4880; or Gregory Kovsky, IBA’s President & CEO, can be reached at (425) 454-3052, Joseph@ibainc.com, firstname.lastname@example.org, or www.ibainc.com/2023.
This guest blog was submitted by International Business Associates (IBA). For more information on guest blog opportunities, contact Marla McColly, Business Development Director, Oregon Restaurant & Lodging Association.