The sale of business assets is when the tangible or intangible property of a company is sold.

Asset Sale Basics

Assets are defined as anything an individual or company owns. This can include physical things like:

  • Real estate (land or buildings)
  • Equipment
  • Money
  • Vehicles
  • Inventory (products)
  • Investments

Less tangible things like a customer or client base, intellectual property, and such are also considered assets to a business.

Asset sales are the only option for selling business property for unincorporated organizations like sole proprietorships or partnerships. Corporations and incorporated businesses can transfer shares, but unincorporated businesses don't have shares.

If a business as a whole is being sold, all of its assets are appraised to determine a fair sales price.

For example, say you are selling your pet grooming business. Your assets may be individually valued at:

  • $7,000 for equipment
  • $1,500 for inventory
  • $5,000 in accounts receivable
  • $15,000 for a mobile unit
  • $5,000 for your trademark
  • $15,000 in goodwill

So, the value of the business would be a total of $48,500. Listing and appraising assets can quickly get very complicated, so it's always a good idea to get a lawyer involved in the process.

Sole Proprietorship Sale

The sale of a sole proprietorship is very difficult, especially when it comes to assets because the personal and company assets are tied together in the structure of a sole proprietorship. Frequently, these types of businesses are operated from a home office or garage, so selling the business with such personal assets wrapped up in it can be tough.

Even if the sole proprietorship doesn't have any office issues, the business owner may want to keep vehicles that were purchased for the business for their own personal use. Basically, business sales are easiest when all assets can be sold along with the business, but the personal nature of sole proprietorships makes this difficult.

Many sole proprietorships are operated by only one individual, so much of the value of the business is actually the intellectual property of the owner. Intellectual property is a very hard asset to appraise, so the true value of the business would be difficult to represent.

For example, consultants usually operate sole proprietorships, but most of the value of their business is wrapped up in their client relationships. If a consultant sells their business, their clients may leave because they don't want to deal with a possibly less-experienced new owner.

Incorporated Sales

When an incorporated company sells their business, they can form a stock sale or share sale. This is the sale of all the shares of the company, not its assets. All liabilities for the business are a part of its shares, so stock sales are a great way for corporate owners to get out from under a company completely once it's sold.

Share sales are only possible with incorporated companies, so sole proprietorships and partnerships cannot conduct such sales unless they change their business structure to a corporation.

Important Things to Understand Regarding Assets

There are several important things to keep in mind when it comes to understanding assets in general.

First, assets lose their value over time; this is called depreciation. This loss of worth can happen due to changes in the market, basic wear and tear from being used (think of company vehicles), or from becoming obsolete as the times change.

Second, it is always a good idea to keep detailed records of your business's assets. When putting an asset through the appraisal process, the lifetime of the object will be considered. For instance, if its a company car, it will be helpful if records of regular maintenance and any repairs were kept. This will help business owners have a good idea of the value of their business before going into a sale, rather than getting any surprises in the process.

Also, keep in mind that all capital gains and losses should be reported on company tax returns. The sale of a business will affect these numbers and will, therefore, show up in your taxes.

If a business owner is having trouble selling their company assets, they can still benefit financially from getting rid of them. Assets donated to a non-profit organization can be deducted from the company tax return. High-value assets should be accurately appraised with proper documentation to be sure that the appropriate amount is deducted.

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