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Wallstreet Esq.
Wallstreet Esq., Tax Attorney
Category: Tax
Satisfied Customers: 585
Experience:  10 years experience
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We are wanting to sell our business to one of our employees.

Customer Question

We are wanting to sell our business to one of our employees. It gets complicated because he only wants the construction side of the business, not the retail end of it. Can you help with a business question like this?
JA: What state are you in? It matters because laws vary by location.
Customer: Texas
JA: Has anything been filed or reported?
Customer: Not for the sale of the business, if that's what you're asking
JA: Anything else you want the lawyer to know before I connect you?
Customer: I have specific questions about the sale. Do I need to ask you first?
Submitted: 5 months ago.
Category: Tax
Expert:  Lane replied 5 months ago.

Hi. My name's Lane. I can help you with this.

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I hold a law degree, with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in finance, a BBA, and CFP & CRPS designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, since 1986

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As a start here, it sounds like what you may wan t do is an asset sale (if you're not an S or C Corp that's the ONLY option).

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What questions do you have?

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Lane

Customer: replied 5 months ago.
My question is more specific, I think. The business is a water feature business with retail store. My employee only wants the construction end. We're shutting down the retail. He will be working out of his home. The business currently is an LLC, Partnership. I also have a boutique that is a dba of the business. His dad is willing to finance the sale but is wanting numbers to reflect the worth of the business. My Quickbooks program is all inclusive with the retail end of it and boutique. His dad is also wanting monthly expenses, such as fuel, payroll taxes, insurance. Is there a list of things I should or shouldn't be giving him? I've never sold a business before.
Expert:  Lane replied 5 months ago.

That last question you asked is really a product of your negotiating style. What most do is share the information needed TO value the business. P&L, Balance sheet, etc

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There are SEVERAL ways to value the business, but what best reflects value is capitalization of income. It's the income (profit not revenues) that the business produces that makes it valuable.

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One way to do that is to look at sales of other businesses and see how that sale price relates to THEIR profit.

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Another way to go about that is simply to capitalize by dividing a required rate of return INTO the earnings (again profit) of the business.

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Given YOUR situation, discerning what the profit would be on just the construction end of the business mau be ESPECIALLY difficult if the sales levels (ability to GET business) are an unknown.

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But yes, if it were me and I knew that what I was selling would be profitable, I'd want to show that but producing a P&L for that component of the business.

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If that's NOT possible, you may want simply to look at the fair market value of the hard assets being sold.