In a business asset sale, the buyer is purchasing the assets owned by the business. Assets can be divided into two categories: tangible and intangible assets. Why would entrepreneurs and small businesses choose to start their business through an asset sale rather than starting from scratch? There might be several benefits of buying an existing business in an asset sale.
A business might own a variety of assets and buying a business’s tangible and intangible assets can sometimes give business owners a head start when going into business in certain industries. Buying new restaurant equipment can be costly, and an entrepreneur can sometimes save money by buying this equipment in bulk in an asset sale. Certain types of licenses might be difficult to get and they may be for sale in an asset sale.
For example, if you plan to go into the restaurant industry or start your own restaurant, you can start from scratch, which will require putting together all the different pieces that will make a good business work (buying furniture, equipment, renting or buying commercial real estate space) or you can buy an existing business’s intangible and tangible assets, if they are for sale. It can sometimes be less costly to purchase used equipment. Purchasing inventory from a business that has already been established rather than purchasing these new can be an option for new business owners. If an existing company has strong branding and has developed a good reputation in the neighborhood, buying the business could mean buying the good associations the community has with the branding. However, because there can be many moving parts involves with a business asset sale, it can be helpful to have a business law firm like Legal Counsel, P.A. in Orlando, Florida look over the sale of equipment, inventory, and other tangible and intangible assets.
What is Sold in an Asset Sale?
In an asset sale, the business buyer is ultimately purchasing individual assets owned by the business. What kind of things might be sold in an asset sale? Here are some:
- Website Addresses
- Social Media Accounts
- Accounts Receivable
- Cars or machinery
- Trademarks and Branding
- Client Lists
- And more
Generally, when buying a business, if there are any liens or financial liabilities on any of this equipment or real estate, these must be paid off before the sale, unless the buyer assumes these financial liabilities. For example, if there is a lien on the commercial real estate due to unpaid taxes, the buyer has the option of paying these back taxes, but this would reduce the value of the real estate and places a greater burden on the buyer. Because these financial liabilities can reduce the value of certain items, it is important to do proper due diligence before buying a business in an asset sale. Legal Counsel, P.A. is an Orlando, Florida business law firm that works with business owners, entrepreneurs, and others looking to buy a business to start their own business.
Assessing the Value of Certain Assets in a Business Asset Sale
A business asset sale might involve a variety of tangible and intangible assets. Pricing tangible assets, like inventory, equipment, or commercial real estate can be done by appraising these items and by doing proper title searches to ensure that there are no financial liabilities attached to these items. The value of these items will depend on their age and their fair market value, and whether there are any issues with the title of any of these items. Sometimes, if issues arise, the buyer can renegotiate the price, or choose to not buy a troubled asset.
However, placing a value on certain types of intangible assets can be more challenging. For example, what would a company’s branding be worth, or what would a company’s relationships with suppliers and consumers be worth? These intangibles can sometimes be priced by a business showing how branding or current client lists increase earnings or increase a business’s revenue. If a business has major accounts in the community and each of these accounts result in predictable revenue, this could clearly result in an assessment of value. Of course, when it comes to pricing intangible assets, much of this is up for negotiation.
There are other things that may need to be considered when purchasing a business’s assets. Tangible assets may need title searches and may need new titles. Contracts with existing clients and employees may need to be re-done, or existing contracts may need to be reviewed by a lawyer. Legal Counsel, P.A. is a business law firm in Orlando, Florida that works closely with clients purchasing business assets. Another way individuals can purchase a business is by purchasing a business in a stock sale. With this kind of purchase, additional issues must be considered. Have questions about your business purchase? Legal Counsel, P.A. is a business law firm in Orlando, Florida that is here for you. Have questions? We have answers. Contact Legal Counsel, P.A. today at 407-982-4321.