Unlike real estate, most people (including heirs and executors) have never owned a business, let alone sold one. So, when it comes up in an estate probate, understandably, folks are lost. We have a recent estate example, which included a retail business.
1. How to secure the business location
Vacant storefronts can attract crime, vandals, and the homeless. Just like when you go out of town, make sure the lights are on a timer and use motion sensors. Make sure that the alarm/security system is working and paid-up. Also, keep mail and newspapers from piling up.
2. How to get the business financials
We need these to figure out what the business is worth. Plus, any buyer will want to see the financials before they become serious about purchasing. So, you ask the CPA or piece together from prior tax returns. Many folks take a do-it-yourself (DIY) approach to business these days, so check the decedent’s computer to see if they used QuickBooks or a similar accounting program.
3. How to get a business appraisal
Why do we need this in addition to financials? Well, not everyone will interpret the financials the same way, so getting a qualified appraiser will allow everyone to be on the same page. Also, comparables are not so easy to find for businesses like they are for houses. Businesses are different from each other and are typically hard to compare. Lastly, a business appraiser is a 3rd party, with an independent opinion. This is beneficial for buyers and the heirs. You want to make sure the heirs don’t question you for selling too low. Therefore, having an appraiser gives them an answer for the sale price ballpark.
4. Take stock of the business assets
Figure out what you have and what you need to keep. I’m not necessarily referring to inventory, although that’s important, too. If it is a liquor store, you don’t want to see the inventory consumed away by someone! I’m referring more to key assets, like employees. If you want to sell the business with a manager in place, you’d better keep the manager happy. He’s actually part of the value of the business.
If the decedent didn’t own the real estate, you need to understand the lease agreement (terms, time left, relationship with the landlord, etc.). These are what you parcel together to sell the business. If it’s in a great location, but there is only one year left on the lease, that might not be very appealing to the buyer. If it’s in a great location with eight years left on the lease, that’s helpful to know.
5. How to choose a business broker
Why do you need a business broker? As mentioned above, it’s hard to figure out comparables. If you don’t have the savvy or the experience, it’s hard to know how to compare this stand-alone liquor store to a wine store in a strip mall. People may try to sell a house on their own, but there are fewer DIY and “for sale by owner” options for businesses. It would be hard to sell without a broker. It’s not just about finding a buyer; brokers help with the grind and paperwork of closing.
How do you find a business broker? Many realtors do both. I’m not a big fan of realtor-brokers, but sometimes this may be your best bet in small cities. In larger cities, there may be more brokers available who are solely business brokers. With most professionals, it’s usually better to use someone who specializes, instead of a jack of all trades.
If the business has a CPA, check with them. CPAs are often good resources for attorneys and brokers.
If you have no luck with the methods above, look for similar businesses that have sold, and find out who they used. This may take more legwork, but the information is usually out there online.
Setting up your estate plan is the key to successful estate administration involving a business. For more information on unexpected twists and turns and why probate can take so long, check out my book, “How Probate Works,” available on Amazon.