You have made the decision to sell your company, now what?
You have made the decision to sell your company.
You are tired and being a leader has been fun, but the kids have chosen other career paths, and do not want to inherit your company. They won’t take it, even if it’s free.
Valuation- are you making a profit?
Now that you have made the decision and the kids have said no, you want it to happen immediately. Unfortunately, that is not how it usually works. If you have been a good steward of your resources and have been valuing the company every year for the past five years, you will have a good understanding of the financial value of your business.
With interest rates almost 300 basis points higher than in 2021, and a challenging past 5 years with the added stress of increased operating costs you’re still unclear of the value. You are waiting for the moment when the FED reduces interest rates by one to two points increasing your business value, giving you the chance to sell and take the money to the bank.
Listing Agent
In the meantime, you will have to find a current reasonably attainable value, not the pie in the sky valuation. Once you have that, you can put your company on the market. If you have overvalued it, you will not be able to sell it, unless you have tools or clients in place that a potential buyer desperately wants.
There are many ways to sell a company, depending on the size of your business. Typically, you have will have a business broker or investment banker list and sell the company for you. The time and energy it takes to market your company makes it nearly impossible to run the company and search for potential buyers at the same time, particularly if you are not selling it to your employees.
Who is the likely Buyer?
It’s hard to figure out who the likely buyer will be. Often a Seller of a company will sell to their leadership team or their employees through an Employee Stock Option Plan. It’s not unusual to have a local competitor purchase your company. When we sold our company, we had five offers at different price points. Of course you want to maximize your return, but as a CPA once told me, the culture of the merger is critical. Especially since so many mergers and sales fail to be successful.
“The percentage of business sales mergers that fail is between 50% and 90%, with many studies estimating “an average” failure rate of 70%. The primary reasons for failure include a lack of planning, poor integration, cultural clashes, and issues with valuation or synergies.” (4)
Once you’ve sold, you don’t want the company destroyed by the Buyer. There are often clauses in the sale agreements that could make you responsible if the company revenues do not materialize. So don’t rush to the altar. We said “no” to two out of five buyers because the culture did not match, and ”no” to two buyers because we could not reach the sales price we needed, which was of course a very reasonable sales price based on the then market for companies like ours.
Buyers to consider
Your leadership team
Your employees – ESOP
Local or regional competitor
Private equity
An investment company
A friend
Due Diligence
While negotiating the contract with a potential buyer (with your attorney), the company will need to prepare for due diligence. The buyers want to ensure they are telling the truth about your company and will want to check all of the accounting and operational details thoroughly.
The due diligence process can be somewhat arduous. They will want copies of all agreements with clients and vendors. They will want to review historical financials at every level. They may want to interview employees, especially key managers. They may want you to carry “tail” insurance over 3 – 5 years to limit their liability from client or employee lawsuits. You need to be prepared for this thorough look at your company. If you begin proper preparations ahead of time it will make the process, feel less overwhelming.
Cost of Sale
Selling a company can be very expensive. It’s essential to have a realistic handle of the costs of a sale. The costs may include legal fees, Brokerage commissions, CPA reviews and potentially costs involved with a bonded Escrow Agents like , Guardian Contract services (http://www.guardian-escrow.com/). Most importantly you need to get a handle on the taxes you will pay on the sale of your company, think Federal, State and Local.
When considering the financial gains of selling, remember that the cost of the sale isn’t just your immediate return when the company sells. You may also need to consider if the buyer will require a non-compete agreement and if that will affect your future earning potential. If they do, take your time to review it carefully. The Federal
Trade commission has been seeking to limit the term and other limitations of a non-compete but was stymied by the courts.
Some states (2025 -2026 sessions) are trying to limit non-compete agreements for employees (New York (S4641) and New Jersey (S 4385) for example. In Oregon for example, a non- compete may be signed for a term longer than 12 months if the agreement is in writing, and the restriction is reasonable to protect the sale of
Goodwill associated with the sale of a business.
Beware of Capital gains taxes
Asset Sale vs Stock Sale
As you will see the nuance in your sales strategy is going to be critical, especially the larger your company.
“Generally, a stock sale is better for the Seller, and an asset sale is better for the Buyer.
In a stock sale, the seller can realize the gain on their business at preferred capital gains tax rates. In an asset sale, any gains are exposed to the seller’s ordinary income tax rate on certain assets. If the company is sold as an asset through a C-Corp, the proceeds are exposed to double taxation (corporate tax and individual tax rates).
The buyer, however, prefers an asset purchase from a tax perspective because they will have a stepped-up basis which allows for additional depreciation and/or limited the potential gain should the business be sold in the future. Evensky & Katz /Foldes, Wealth Managers(1)”
There is another option. You can sell your clients (accounts) to a competitor either for cash or by carrying back some of the sale in the form of a note (installment basis), over time with a significant down payment. This spreads out the income and reduces the tax hit. Your CPA will need to help you decide if this qualifies for capital gains treatment.
“When selling accounts receivable on an installment basis, the gain is generally taxed as ordinary income, not capital gains. The IRS prohibits using the installment method for inventory and receivables because they represent ordinary business income, not capital assets. “ (2) & (3)
Conclusion
There are a lot of reasons that motivate a business owner to sell. These include that the business is making lots of money and its time to work in another business or project. Health (yours or your family members) makes a difference. Don’t wait for illness, you may cave during the negotiations because you don’t feel well enough. It helps if you have a good team in place, then you have something to sell, a company that is a solid business with a solid employee bench.
Maybe the stress of running a company is too much for you, or the company has grown successfully beyond your ability to manage, but it does not generate enough revenue to hire a manager to run it for you, all valid reasons to sell a company. In any case it takes planning to sell your business. There is no one reason to sell a business, and you may not know it’s the right time, but it always makes sense to explore it as an exit strategy.
Now you have some food for thought and are ready to make the key decisions as you plan to sell your business.
Sources
1. https://evensky.com/news/asset-sale-vs-stock-sale-how-to-weigh-the-options-when-selling-a-business/
2. https://www.pkfod.com/insights/key-tax-considerations-when-selling-a-business/
3. https://www.irs.gov/publications/p537#en_US_2024_publink100043409
4. https://finance.yahoo.com/news/why-90-mergers-acquisitions-fail-155000525.html
Clifford A. Hockley is Principal Broker at SVN | Bluestone, as well as the managing member of Cliff Hockley Real Estate Consulting, LLC. As a Certified Property Manager & Designated Managing Broker, Cliff has 41 years of experience in the brokerage and management of Real Estate companies. Bluestone and Hockley Real Estate Services manages condominium associations, multi-family, and commercial properties in the greater Portland area. He was focused on running the company and involved with investment property brokerage. He worked with financial institutions, governmental agencies, private investors, and not for profit organizations. He also has vast knowledge in budgeting, organizational management, and building structures. His previous experience includes over five years in accounting, production supervision for a manufacturing company, and work for state agencies in California.
Cliff grew Bluestone and Hockley Real Estate Services into a 100 employee company that managed over 2 billion dollars of real estate assets before he sold the company in 2021. He also supervised a sales team of over 15 real estate brokers for over 35 years. His monthly newsletter, QuickFacts has over 2,300 subscribers. He has been involved in numerous real estate transactions that include industrial, retail, office, and multifamily properties. Cliff has also written a book called “Successful Real Estate Investing; Invest Wisely, Avoid Costly Mistakes and Make Money” published by Morgan James Publishing in 2019.
Cliff has successfully coached real estate investors and CEOs located throughout the United States since 2015. He has acted as a sounding board to help untangle knotty issues that need an experienced outside opinion. He guides leaders who find it is “lonely at the top” and need an experienced hand to help set a strategic direction, sort out operational problems and want to talk through challenging business decisions.
He has served as an adjunct professor at Portland State University from 2028 – 2021, teaching classes in: Intro to Real Estate, Basic Real Estate Finance, Property Management as well as Real Estate Investment Fundamentals. He has instructed hundreds of students and believes that substantial preparation and active student engagement are crucial for learning and appreciating the field of real estate. Students appreciate his candor and real-world experience.
Among his many civic activities, Cliff served on the Board of Directors for the Portland Chapter of the Institute of Real Estate Management (IREM) and the Rental Housing Alliance of Oregon. In 2014 he was recognized by IREM as board member of the year, and in 2015 he earned an achievement award in brokerage from SVN International. In the years 2000 & 2003, he was recognized by IREM as Certified Property Manager of the Year.
