Buying and selling large assets is a normal part of growing your wealth. However, some additional complications and challenges come with these activities. Some common issues arise depending on the asset you are buying or selling. Knowing what they are in advance can help you prepare for them and hopefully avoid them or smooth out the process of asset purchases and sales.
1. Due Diligence
Before anyone makes a large purchase of any type of asset, they need to do their due diligence. If you are the buyer, due diligence ensures you get the asset you think you are buying. If you are the seller, then due diligence done by the buyer will justify the price at which you are asking for your assets. Due diligence could include a deep dive into financial records depending on the asset being purchased. This includes current and past contracts, outstanding liabilities, and other financial agreements that could impact the asset’s value. Due diligence can also include additional elements that can affect value, such as intellectual property rights or regulatory restrictions and compliance requirements.
2. Valuation
Sellers will always want to value your assets on the higher side. Buyers will always want to value assets on the lower side. It is up to both parties to negotiate and compromise to meet somewhere in the middle. In addition, the valuation method can further complicate things.
- 1. Market approach
- 2. Income approach
- 3. Asset-based approach
One method for finding an accurate valuation is to enlist the assistance of professionals. However, even professionals can have varying value assessments.
3. Negotiation and Documentation
Once the seller and buyer have an idea of what they are willing to offer/accept, the negotiation phase can begin. As part of negotiating the price, the asset can change. The seller may agree to a lower price but want to exclude particular elements. Or, a buyer may agree to a higher price if the seller includes additional assets or services. The parties need to document the changing terms throughout the negotiation process. A common mistake made is to not accurately document all negotiation communications. This leads to one party not getting everything they wanted because a negotiated term was omitted from the documentation.
4. Tax Implications
You may have an agreement for asset purchase, but this is only the first part of the expenses. The seller needs to consider the tax implications of the sale of their asset. The buyer needs to consider the additional tax liabilities they are taking on when purchasing their new asset. A seller may owe taxes if they profited from the asset’s sale. A buyer may owe ongoing ownership taxes.
5. Regulatory Compliance
Some assets require additional regulatory considerations. Common regulations that can impact financial assets include securities and antitrust laws. These ensure you aren’t money laundering or embezzling. Environmental regulations may impact real estate assets. There may also be industry-specific regulations that impact business asset operations.
6. Post-Closing Issues
Once the asset’s sale is completed, a few potential issues can still arise. There is the actual transfer of ownership and the recording of the new ownership in official records. There may also be financial records that need recording and adjustments. Finally, there could be outstanding liabilities or disputes that the old owner is still liable for and the new owner is not a part of.
Minimize Your Challenges in Business Asset Purchases or Sales
You can minimize your challenges in business asset purchases or sales when you work with an attorney. Having experienced legal representation can help you avoid common pitfalls and mistakes. Your lawyer can assist with performing due diligence, sourcing people for valuation, negotiations, and contract preparation.
Schedule a consultation with our experienced team today to discuss your planned sale or purchase of an asset.
