We help a lot of people buy and sell their businesses. We love being a part of this exciting process! Often, we run into situations where a family member is looking to sell their business to another family member or close relative. While this can be an optimal opportunity, it can also be disastrous if things are not handled properly. In order to avoid the disaster type of situations, here are some things to avoid:
Do not expect everyone to feel happy about everything at the end.
A common misconception about doing a business deal with a family member is that somehow everyone will be happy with the deal because they are family. This has not been my experience, as this is a business deal after all. Most business deals require negotiation and compromise. This means that each side gives up something that they would have liked to have. Often times, both sides will feel like they have compromised more than the other side did. That is common in most relationships. Expect feelings to slightly strained immediately following the transaction, but they will recover soon thereafter.
Do not assume that your family member can (or wants to) run the business the same way you have.
No two individuals are the same, and no two individuals run a company the same. In addition, there are two types of family members that want to buy your business: 1) the ones who see your success and simply want to duplicate it, or 2) the ones who see an opportunity to improve on what you have started. Those who want to jump in and duplicate your success may find so hard to do. On the other hand, those who want to jump in and improve on what you have started may find that it feels like a reflection of your failure as a business owner.
Do not do a handshake-only deal.
When selling a business, it is important to have the right legal documents in place (that’s what we do!). This protects both sides from misunderstandings and future confusion. Things covered in a typical agreement include payment, liability, splitting of assets, assignment of contracts, non-compete agreement, indemnification, taxes, etc. There are many moving pieces in a business sale, and having a short and simple document that spells out issues is important. Handshake deals are only as good as the memory of the people making the deal.
Do not expect the money issues to simply work themselves out.
It is all about the money! Most fights that happen after a buy/sell are about the money. Most people think that it should be pretty simple – you set a price, then the buyer pays. On the back end, though, we have to think about about the following:
1) Is there financing involved, or is this an owner-carry back situation?
2) What happens to the money in the business bank accounts on the date of the sale?
3) What happens with payments for work that happened before the sale but were paid afterward?
4) What happens to tax and other obligations that straddle the sell date, etc.?
We will make sure to spell all of this out in the simple legal documents that we use.
Do not forget to check on transferring the business licensing, contracts, customers, vendors, lease, and financing.
Even when we want to sell a business, we need time to plan out the transition of licenses, customers, vendors, leases, and financing. Contracts with the various businesses that the company works with may have a clause relating to whether the contract is assignable or even what needs to happen if there is a change of ownership. It is important to gather all of that information in advance so that the issues can be reviewed and resolved well before the sell date approaches.
Contact Counxel Legal Firm
We would love to help you with selling your business to a family member! Contact us at (480) 744-6621 or at request@counxel.com. Don’t forget to check out the good things that others are saying about the services they received from Timothy Coons on Google.
This article is intended for informational purposes only and does not constitute legal advice for your specific situation. Use of and access to this article does not create an attorney-client relationship between you and Counxel Legal Firm. Please contact request@counxel.com or (480) 744-6621 to request specific information for your situation.
*Conveniently located off the 101 Freeway and the US 60 in the middle of Phoenix, Scottsdale, Tempe, Chandler, Gilbert, Mesa, and Queen Creek!
