Buying and selling is alive and well in the micro gym business arena. Many of our calls each week are from gym owners looking for help selling their gym and entrepreneurs looking for help buying gyms. The start of each conversation usually goes like this,
”Hi, I’m _____________, I reaching out because I need help buying/selling the BUSINESS.”
We highlight the word ”Business” because that is where we focus from this point forward. More often than not, buyers and sellers talk about selling/buying a business. However, what they really mean is that they want to buy/sell the assets of the business. Thus, what we want to do in this article is help you understand the difference so that you can better understand this somewhat complicated process.
When we talk about a business, we are often actually referring to two pieces: the Company (LLC) and the physical operations (all that is involved in making money). Every Company has stock. Some Companies sell their stock to buyers. These are publicly traded companies like Nike or United Airlines. Your company has stock, you just don’t sell it. This is your Limited Liability Company, or LLC.
Every Company runs a business. This business is the day-to-day physical operations that make money. This is the purpose of the Company. Your business is probably running some kind of gym. That’s how you make money. Every Company has assets. Anything the Company owns, tangible or not, that helps the business make money, is an asset. For gyms, think of this like your equipment, brand, and membership.
When someone wants to sell a business, we have to determine whether they want to sell the Company, or only the assets. If the person wants to sell the full Company, the actual LLC, that is a stock sale/purchase. That person is selling the LLC. The buyer buys EVERYTHING. This includes assets, liabilities, debts, accounts receivable, accounts payable, vendor contracts, leases, vehicle titles, etc.
When you sell the stock in your LLC, you are walking away hands clean of everything.
When someone wants to sell only the assets of a Company, that is known as an asset sale/purchase. The seller still owns the LLC. The seller is still responsible for the debts and liabilities of the Company. The only things transferred during the sale are the assets. The buyer typically files his/her own LLC and may or may not wants items like leases or vendor contracts.
Generally speaking, an Asset Purchase is faster and cleaner. Smaller companies with little debt and fully owned assets usually want an Asset Purchase, not a Stock Purchase. It is important to understand the difference and make sure you pick the option that is best for you.