Succession: Selling a Claremont Small Business

Succession is a project, not an event

Owners tend to think about selling in the year they want out. The businesses that transfer well were being prepared for transfer long before that, usually because the same work that makes a business sellable also makes it easier to run.

The core idea is simple. A buyer is purchasing the ability to keep operating without you. Everything that only exists in your head, in your personal relationships, or in your unwritten arrangements reduces what transfers.

Make the business independent of the owner

Ask an honest question. If you were unavailable for a month, what would break?

Whatever the answer is, that is the work. Documented procedures. Staff who can run the day without you. Supplier relationships that belong to the business rather than to your friendship. Customer records held in a system, not in a personal phone. Pricing, scheduling, and quality standards written down.

A business that depends entirely on the owner is a job with inventory, and it transfers accordingly.

Clean records are the price of entry

Buyers and their accountants will ask for financial records, tax filings, and payroll records over a multi-year period. Records that are incomplete, informal, or heavily mixed with personal spending force a buyer to discount for uncertainty, because uncertainty is exactly what they cannot price.

Get a CPA involved well ahead of a sale to put the books in a state a stranger can verify. This is one of the few preparation steps that pays off in both directions: it also tells YOU what the business is really doing.

The lease is often the most valuable asset you hold

If the business operates from leased premises, the transferability of that lease can matter more than any other single term of the deal.

Check, well in advance: How much term remains? Are there options to extend, and are they assignable? Does the lease permit assignment, and on what consent standard? Will the landlord release you from a personal guaranty when a buyer takes over, or will you remain on the hook for a tenant you no longer control?

That last question surprises sellers. It is entirely possible to sell a business and remain personally liable under the lease. Have an attorney address it as part of the sale rather than discovering it afterwards.

If the remaining term is short, renewing before you market can materially change what you are selling. Our leasing guide covers the clauses involved.

Confirm the approvals are in order

A buyer's diligence will ask whether the use is currently permitted at the address, whether any conditions attach to it, and whether the physical configuration matches what was approved. If there is a gap between what was approved years ago and what happens on site today, better to find it yourself than to have it surface mid-escrow.

Ask the City of Claremont. Ask Los Angeles County about health approvals if food is involved. Fix what can be fixed, and disclose what cannot.

Decide what happens to the real estate

If you own the building, you have three broad paths, and they lead to different lives.

Sell the business and the building together, which gives the buyer certainty and simplifies their financing. Sell the business and keep the building, becoming the landlord to your successor, which produces income and a continuing relationship but also continuing responsibility. Or sell them separately to different parties, which requires a lease between them to be negotiated as part of the deal.

None is automatically better. The right answer depends on your income needs, your appetite for being a landlord, and your tax position, which is a question for a CPA. The property side of the analysis is where I can help; the tax consequences are not mine to advise on.

Understand what a buyer is actually paying for

Buyers pay for transferable, verifiable earning capacity and for the certainty that it continues. Anything that increases certainty tends to increase interest: a long assignable lease, documented systems, staff who intend to stay, current licences, equipment in good condition, and records a stranger's accountant can confirm.

Anything that increases doubt does the opposite. Concentration in one customer. A key relationship that leaves with you. Deferred maintenance. A licence that may not transfer.

Preparing to sell is mostly the work of removing doubt. What that translates to in a specific market on a specific day is not something to guess at in an article; it is a conversation with professionals looking at your actual business.

Plan the handover before you need it

Buyers frequently want the seller to stay for a transition period, and sellers frequently underestimate what that involves. Agree the scope, duration, and terms in the contract rather than in goodwill. Agree what happens with the staff, and when they are told, because an early leak can cost you people you were selling.

Agree what you will do afterwards. Restrictions on competing are limited in California, so ask an attorney what is actually enforceable rather than assuming a standard clause protects the buyer or constrains you.

Build the team early

An attorney for the structure, the lease, the assignment, and the employment questions. A CPA for the books and the tax planning, which often needs to start years rather than months ahead. And someone on the property side to advise on the lease and the building, because those are frequently the parts that decide whether the deal closes at all.

Owners who start this two or three years out have choices. Owners who start it when they are already exhausted usually have fewer.

More across the cluster on the small business hub, and to see the same transaction from the other side, read buying an existing business. Anthony Grynchal has been licensed in California since November 2009.