In my career, I have only sold a handful of businesses, the majority a part of a real estate transaction. I refer clients to a business broker if they plan to sell a business as it is different from selling real estate.
The difference in selling a business starts with determining its value, and there are several methods to do that. Still, it all begins with preparing financial reports and a seller’s discretionary income statement.
The simplest method in valuation uses a multiple of current or future earnings. The difficulty, though, is using a multiple common for the business type and location.
Consideration of the physical assets, as well as “goodwill,” are also a part of the valuation. Asset valuation of the non-real estate related assets can be difficult for the business owner to accept when they do not meet their expectations.
Goodwill is the value of the business name and product offering in the location or sector. When a business owner is well-established, and the name is well-known, it can be synonymous with value.
One takeaway — have a business broker or attorney draft the purchase agreement and use an escrow company to handle the transaction.
Update on the surprise deed of trustIn a November column, I wrote about a deed of trust my parents held against a duplex they sold in 1975. The property is selling a second time and the title company discovered a lien on the property.
The lien was a recorded deed of trust for a purchase money loan of $15,600 my parents provided to the buyer.
To close escrow, the title company needed my deceased parents to sign a deed of reconveyance.
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The real estate agent found my brother and me and asked us, as heirs, to sign a deed of reconveyance, essentially wiping clean the lien and, subsequently, the loan.
The seller needed the lien satisfied to sell the property, but no record exists showing loan payment. They were in a bind.
My brother and I agreed to sign the necessary documents for a payment of $1,500. The escrow company asked for a copy of my mother’s trust from 1995, which I was able to locate and sent it to the title officer.
They closed on their escrow, and a few days later, the title officer asked me if I want to pick up the $1,500 check or have it mailed, at which time I asked to whom it was made payable.
The check was made payable to my mother’s trust that was dissolved over 13 years ago, along with the bank account.
Evidently, the escrow company cannot change the payee name on the check.
I explained to the title company when this all started that my parents were deceased, and the trust no longer exists.
Unfortunately, I was not privy to the escrow instructions, and someone did not connect the payee name on the check is to a non-existent trust entity. Now I have a check that I cannot cash.
The escrow company is working on a solution.