Beyond the Pitch
How to Plan for a Successful Sale of Your Business
Business sales can be some of the most stressful times leaders of companies ever go through. Transactions are high-stakes and can be very time-consuming.
The time to anticipate and prepare for selling the business is well before the combination of growth and progress, board and investor pressure, market dynamics, and a hundred other factors, including fatigue, make the timing “right.”
Having been through the process quite a few times, I have a few recommendations that can help make the process go more smoothly and more likely to produce a good result at the end.
1. Get the team together early, before it’s time to sell.
Every successful business sale is a team sport. Business owners who are serious about selling cannot do it alone. They will likely need assistance from an investment banker (or business broker), legal counsel, and the company accountants.
As businesses grow, it’s fairly common to receive calls from investment bankers as they seek to establish relationships in the hope of getting business if and when the company owner decides to sell. There’s nothing wrong with that; talking with investment bankers is an opportunity to learn.
However, when it comes time to engage, don’t limit contacts to only the intermediaries who have already reached out. Interview several intermediaries to determine their relevant experience and history of successful sales. Ask other business leaders and company founders who have completed exits for recommendations. Determine if there are intermediaries with a particular industry focus that fits. Are there regional professionals, or does the company need to look farther afield? Request references and follow up with those references.
A successful business sale is also helped by experienced legal counsel. Not every attorney has relevant experience in managing business sale transactions; inexperienced counsel can seriously reduce the chance of a successful result.
The company may have a great relationship with its current attorney, but if that lawyer isn’t experienced in business sale transactions, be honest and upfront about what the company needs, and then feel free to interview and hire experienced transaction counsel for the deal. As with the process of hiring an investment banker, ask for references and follow up.
The company’s accountants will also be a critical part of the team in an exit transaction. Depending on the progress the business has made, audited financials may be required, another reason to consider the appropriate financial requirements at least a year or two before the sale process starts.
Potential buyers will review financial statements and tax returns very closely. In some cases, acquirers will conduct a quality of earnings study. The due diligence team will turn to the accountants for explanations.
Additionally, accountants and attorneys will be important advisors on how to anticipate, plan for, and minimize the tax consequences of a business sale.
2. Get organized.
Nothing helps the sale process go smoothly and produce a good valuation more than organization.
As a starting point, ask your attorneys and investment bankers for an example due diligence checklist. This will give you a good sense of the information that you will need to locate and organize in preparation of the sale process.
The best practice is to establish and follow a system and process from the earliest days of the company that securely organizes and retains all documents. If that is in place, preparing for a sale becomes a matter of updating and verifying. However, if the company records are incomplete or sloppy, corporate records must be collected and organized in preparation for due diligence before any sale can proceed.
Locate all applicable documents before talking to any potential buyer. If the company hasn’t already done so, create a data room. Make sure you have signed copies of all agreements, and that the copies include all pages. Update the data room as the business enters into new agreements. Examples of documentation include board and shareholder minutes, contracts with customers and business partners, intellectual property documentation, employment agreements, non-disclosure agreements, real estate documentation, insurance policies, and financial statements.
Work with advisors to identify areas of concern and weaknesses early in the process. Provide attorneys with adequate opportunity to review critical agreements as well as the corporate minute book. Have all contractors signed invention assignment agreements? Are there any concerns relative to critical intellectual property? Are there any pending or threatened lawsuits or employee disputes?
Identify and address these issues before they raise concerns for potential buyers. Companies that are organized and prepared for due diligence have much better odds of a successful sale and the potential for a more attractive price.
3. Treat visitors like important out-of-town guests
As the sale process advances, representatives of potential buyers will want to visit the business premises. Treat them like company.
Appearances count; first impressions cannot be undone. Clean up the office. Make the place look organized. Have the staff tidy up their work areas and the break room. The company location should look like a business.
Depending on the situation, employees may or may not be informed that selling the company is a consideration—but they can be made aware of important visitors.
When representatives of the buyer visit, team members should be working in the office, rather than telecommuting from home. Flexible work schedules and home offices are fine, but nothing looks worse to some buyers than a half-empty, messy office on the day of a due diligence visit.
Successful exits take a lot of work, but common sense planning and organization go a long way towards making the work pay off.
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