Will appear on Buy-Side pages – RECENT BUYER ARTICLES

Personal versus Enterprise Goodwill in a Business Sale

/in , , /by Bob Altieri

Goodwill can exist in two different forms:

  1. Personal Goodwill, which is defined as an intangible asset that is attached to a person; and
  2. Enterprise Goodwill, also an intangible asset that is attached to a business enterprise.

If goodwill is attached to an individual, it is non-severable since the person to which it is attached is not being sold. This also implies that the asset is non-transferable. Of course we often establish contractual arrangements between the parties to lessen the non-transferable portion of personal goodwill to some degree. The ability to pull this off depends on the size and nature of the business being transferred. Smaller businesses tend to have more personal goodwill due to the owner’s personal contact with customers or channel partners, or unique skills (e.g. a chef in a restaurant operation, a surgeon, etc.).

With enterprise goodwill being attached to the enterprise, this asset is indeed transferable because it is a part of the business being sold. So it may be obvious that enterprise goodwill usually transfers to the buyer without special arrangements. Personal goodwill, on the other hand, requires much deeper analysis to determine how and how much of this intangible asset is reasonably transferrable to a willing buyer.

Enterprise goodwill has transferable value, whereas personal goodwill may or may not have transferable value.

Without proper analysis of goodwill value, whether or not it is related to an individual (usually the owner), and thoughtful strategies for the transfer of the personal goodwill component, the value of a business can be significantly distorted (diminished).

Should we use a business sale escrow? What does an escrow holder do?

/in /by Al Statz

A client recently asked me these questions, and I thought the answers would make a good blog post …

A business sale/purchase escrow holder protects the interests of buyers and sellers of small businesses by acting as a neutral independent fiduciary, communications link and closing facilitator. Escrows are used extensively by business transaction attorneys and intermediaries throughout California since regulatory compliance, routine closing documents and administrative details are handled in an efficient, cost-effective manner.  Business escrows are used in both asset and stock sale/purchase transactions.

These are the typical duties of an escrow holder in an asset transaction:

  1. Preparing escrow instructions reflecting the terms of the purchase agreement and describing the duties of the escrow holder
  2. Obtaining and holding purchase funds from the buyer
  3. Complying with Bulk Sale statutes (public notice to creditors), when applicable
  4. Obtaining UCC lien searches for state and county
  5. Notifying the county tax collector
  6. Requesting a beneficiary’s statement if debt or financial obligations are to be taken over by the Buyer
  7. Requesting pay off demands from existing lien holders, receiving claims
  8. Notifying and obtaining clearances from county, state and federal agencies as required
  9. Routine consultation regarding questions and problems that arise
  10. Complying with lender requirements, securing loan documents, signing and receiving funds
  11. Prorating expenses and income (taxes, interest, rents, security deposits, etc.), as instructed
  12. Preparing/filing fictitious business name statements
  13. Preparing routine transaction documents and amendments
  14. Preparing estimated closing statements prior to close of escrow
  15. Securing releases of all contingencies and conditions imposed on the particular escrow
  16. Obtaining appropriate signatures on all documents
  17. Preparing final closing statements for the parties, accounting for the disposition of all funds deposited in escrow
  18. Closing escrow when all instructions of the buyer and seller have been carried out
  19. Disbursing funds as authorized by instructions
  20. Recording UCC-1, UCC-3 and deeds of trust, as needed
  21. Securing tax clearances
  22. Distributing final transaction documents to all parties

This list is generic. Escrow duties in an actual business asset sale / acquisition in California depend on circumstances and are spelled out in instructions prepared by the escrow holder. The duties performed in stock transfers are quite different.

•    •    •

Al Statz is President of Exit Strategies Group, Inc., a business brokerage, mergers, acquisitions and valuation firm serving closely-held businesses in California. He can be reached at 707-781-8580. EXIT STRATEGIES GROUP DOES NOT PROVIDE ESCROW SERVICES.

See You on the Other Side

/in , , /by Al Statz

Is a smooth transition possible when acquiring a business? I was was recently interviewed on this subject for the May 2011 issue of Entrepreneur Magazine …
Entrepreneur_1

Q:    I’ve started talks with a company’s owner to acquire her business. How do I make sure my first days as the new owner go … well, is smoothly asking too much?

A:    Ah, the first-time buyer. After talks get going, there’s always that day when you wake up and say, “Oh yeah, I’ll need to run this place.” A smooth transition isn’t too much to ask for–as long as you start working toward it early in the acquisition process. Your most important tools for a better Day One? A strong transition plan and the wisdom of the company’s original owner.

“In successful transactions, the principals have time, after the negotiating is done, to sit on the same side of the table and focus on the transition plan,” says Al Statz, president of Exit Strategies Group, a business brokerage, merger and acquisitions and valuation firm in Petaluma, Calif.

…

 Click here to see the full Entrepreneur Magazine article.