Before a business is bought or sold, it is essential to the process that both the buyer and seller have a firm grasp of the value of the organization in question. Failure to completely take into account for the worth of a business can lead to a variety of problems, both legal and financial. There are a variety of factors involved in determining the value of a business, including goodwill, a client list, any real property, inventory and other assets, such as machinery and equipment.
Along with physical items, like equipment and inventory, the value of any real property should also be taken into consideration when determining the total worth of a business. It is important to know if the land that a business is on is being leased or owned by the seller. If it is not owned by the seller, the landlord’s permission will usually be required to take over the lease.
In spite of not being a physical asset, goodwill is an important part of calculating the value of a business. It encompasses how much name recognition an organization has as well as its reputation, which are both important parts of being able to successfully move forward following a sale. Other important items would include intellectual property such as a trademark or patent.
Failure to understand the law can lead to a variety of issues, even if someone did not intend to violate it. A business and commercial law attorney may be able to help with the sale of a business by explaining to the client the legal requirements involved in the transaction, including any regulatory or other approvals that will have to be explained.
Source: Business 2 community, “Value Your Business Before Buying/Selling!“, Paul O’Brien, September 14, 2014
