Forgetting These Seller Tasks can Cost You Millions💰

A list of reminders before you sell your business

Quick Context 🔥

1. What: There are so many moving parts when selling a business that it is easy to forget important actions.

   In this letter we’ll delve into:

   a. Roles to consider bringing on board during your business sale

   b. The difference between tangible & intangible assets

   c. Business sale reminders given by some of the best in the industry

2. Thank you: These findings were compiled from 8+ sources, all of which have been reference below. Special thanks to Quietlight Brokerage & Selling Your Business for Dummies for your insights.

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1. Forming an A+ Business Sale Team 💯

It isn’t always clear who to bring onto your business sale team and variables like business size or industry can add extra layers of complexity…ugh, tough life. 🎻

One things for sure though…selling your business isn’t the time to try flying solo, especially if the transaction is in the millions. Bringing on board professionals to assist you can be the difference between losing 💰 or saving 💰. ¹

Roles that might play a role within the biggest transaction of your life:

Side-note: I don’t always think they are ALL necessary…I’m looking at you brokers charging 10% of the sale. 👀

• Accountant

  The accountant is probably the first business sale team member you’ll want to recruit onboard. The financial condition of your business and the way your financial story is presented, will be foundational to your business sale.

  Your accountant will help prepare the financials that you’ll need to present to prospective buyers. If you’ve worked with an accountant over the years, be sure that person has experience in business sale transactions and the resulting tax implications of the sale. Your accountant will likely participate on your sale team at their regular hourly rate.

• Attorney

  If you currently work with an attorney to advise you on your business structure, employees, contracts, and other legal matters, you’ll want to involve that person on your sale team. Consider engaging them from the onset but certainly as you reach the negotiation stage and closing point.

• Business broker

  Some business owners handle their business sale with only the help of an accountant and an attorney. Others might use a middle-man, aka a business broker. The decision to hire a broker tends to weigh heavily on most sellers’ minds…I wonder why 🤔. Some business sellers will tell you their business sale went just fine without a broker, and others will say the broker was essential to their sale success.

  Brokers can help maintain confidentiality about your sale, find and deal with prospective buyers, and free you from the demands of selling your business while also trying to run it. A broker can also give advice on how to value your business. In return, you’ll pay a fee, which is usually about 10 percent of your sale price.

• Appraiser or valuation expert

  In some cases you may need a formal appraisal. A few example scenarios:

  • Based on the size or complexity of your business, you may need to prove the validity of your business value to the buyer or to the IRS

  • If you doubt the accuracy of the value established by your broker or by your sale advisors

  Appraiser fees can range from several hundred dollars to tens of thousands of dollars, depending on the complexity of your business and whether you want an oral, formal or written appraisal. Most appraisers charge by the hour.

  • Before obtaining an appraisal, ask your broker if they are using one. Discuss this with your accountant too, perhaps between these two resources you can arrive at a good figure from which to start seller negotiations.²

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2. What Are Tangible and Intangible Assets? 🚘

Tangible Vs Intangible Assets

You’ll need to separate your tangible and intangible assets because the IRS requires you to break down the sale price into asset categories…which are then taxed at varying rates.

To value your business assets, you’ll want to create an inventory of all the assets under your business. You’ll then assign a value to each asset based on the cost to create or replace that asset.

Tangible assets 🏠

Tangible assets are the easiest to value because they are typically assets you can see and touch. You can often find comparable items on the market to help determine current market values. When valuing your tangible assets, also talk with your accountant, who can help you calculate the depreciated value of items you’ve held for several years.

• Tangible assets:

  • Business furnishings

  • Fixtures

  • equipment

  • Inventory

  • Real Estate

  • Vehicles

Intangible assets

Our friends at Investopedia have a nice and succinct definition, “An intangible asset is an asset that is not physical in nature.”

Intangible assets can be separated into two general categories:

• Intellectual property rights assets: 

  • Trademarks

  • Patents

  • Licensing agreements

  • Trade secrets

• Other intangible assets aka Goodwill assets: 

  • Your business name and brand identity

  • A trained workforce

  • Loyal clientele

  • Strong and durable supplier and distribution networks

  • Phone numbers and websites

  • Proprietary technology, systems, and processes

  • Brand equity, which is the value of the competitive advantage of your name and reputation in the minds of consumers and business and industry partners ³

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3. Checklist for current & future sellers out there 📝

One Year Before the Business Goes on Sale ⁴

• Engage a CPA or expert to support closing down the business

• Consider engaging a tax expert before you even list the business

• Collect all business documents

• Create a list of assets(inventory, domains, laptops, intellectual property etc)

Four Weeks Before the Sale

• Keep the current business entity open or closing it down

• Sales Tax Licenses - keep open or close

If you choose to keep your sales tax licenses, remember to file $0 returns monthly, quarterly & annually. Otherwise, there could be a $50 fine for not filing and not filing could then trigger an audit…and no one wants that

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Specific Tasks for E-commerce Sellers

Four Weeks Before the Sale

• Back up all of your data

Get as organized as possible. Backup all e-commerce transactions that you’ll need to finalize the tax returns, final sales tax filings, and to calculate COGS. Backup every invoice, receipt, scan, bill, payment, business document, tax return. Make sure to back up everything to the cloud AND one or two hard drives

• Record all sites, passwords & logins…I use LastPass as my password manager, it’s excellent

Use a password vault to save all logins, access details for all of your applications, channels, marketplaces, shopping carts, etc. Include password reset questions & answers in your notes

Side note: Even if you’re not selling your business, get a password manager

• Document your standard operating procedures

Document or create a video of your standard processes. Journal a day, week & month in the life of the business owner so the new owner knows what to expect and plan for. This will go A LONG way for the new owner AND for you. Less things will break, less questions will be asked and more trust will be built. Win, win & win.

• List of actions and support tools

Build a checklist of the daily, weekly & monthly tasks...This is different from the journal above. Document all online tools, subscriptions, cost, support info, and how to change the billing / contact info. Document all business deadlines.

• List all team members, roles & responsibilities

Build an org chart, list all the roles & responsibilities. Any other details to help the team move forward effectively should also be included

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One of the many reasons I’m moving from Chicago to Miami…👋👋

Sales Tax - Assumes, closing down sales tax in all states

• Collect data to file final returns

Make sure to have all the information for the final returns and for every sales tax return, raw data, payment, license, etc. You might need this if you are ever audited in the future…It pays off to assume worst case scenario and be proactive

• Contact each state where registered

Research or ask your accountant how to file a final return (even before the due date, don't wait a year to file sales tax, do this ASAP). Find out how to close the sales/use tax license

• File final sales tax return for each state/jurisdiction=

Save copies

• Pay ALL outstanding collected sales tax

Verify all payments clear

• Check back with each state a week or two later

Deal with any notices, penalties, fees, etc. with the state (just pay if the fees aren't too high, you can request a refund or challenge this but it will take time and could delay moving forward on other more profitable efforts.)

• Close the sales tax account with each state/jurisdiction

Do this in writing, send a letter, then call to confirm that the state thinks the account is close and nothing is owed.

• Follow up 4 weeks later to verify everything was closed properly

Check again a month later (it took us 5 tries and over 6 months to close out all CA business accounts) ⁵

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Would your friends benefit from reading this list of reminders? Even if they are years away from selling this biz? If so…why not share it? :)

My hopes is that you learned as much as I did during this analysis.

Say hi on LinkedIn & Twitter (@JaygerMcGough), collectively we’ll become smarter about buying and selling businesses. 

Don’t forget to subscribe and thank you to the 17+ people who shared last weeks analysis with their friends, I appreciate you and trust this will also help them.

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My lawyers told me to include this:

This newsletter is presented for informational purposes and educational purposes only and should not be construed as professional financial advice. Should you need such advice, consult a licensed financial or tax advisor. The newsletter is composed of opinions and is not intended to give investment advice.

Key Sources

Quietlight, Quickbooks, Irs, Nolo, SBA, Selling Your Business for Dummies Cheat Sheet

1. https://www.dummies.com/business/selling-your-business-for-dummies-cheat-sheet/

2. Ibid

3. Ibid

4. https://quietlight.com/ultimate-sellers-checklist-selling-online-business/

5. Ibid