You have worked very hard on your business. You plan to sell your business, either because you are a serial entrepreneur, or you are ready to retire and your heirs are not interested in running the business. No matter the reason for the sale of your business, you want to ensure that you get the right value when you sell. There are steps you can take that will put you in the best position with potential buyers. Start taking steps well in advance of the time you plan the sale of your business. Some of the steps you should take are set forth below, but you should engage a team to assist you with the sale of your business.
You need to take action to make your business attractive to potential buyers. Some of the steps you can take include the following:
Potential buyers are going to look very carefully at every aspect of your business. They want to ensure there are no potential unknown risks that the business is facing. Potential buyers also use the due diligence process to calculate what they believe the business is worth.
Financial Statements: The financial statements of your business should be in order and should be prepared by a certified public accountant. The same applies to the tax returns of the business. Everything in the financial statements and tax returns of the business should be transparent. You need to be able to answer any question potential buyers have with respect to any line item in your financial statements and tax returns.
Contracts: Every contract between the business and a third party should be organized and ready for potential buyers to review. This should include any loans, guarantees, etc.
Intellectual Property: Depending upon the type of business you have, you will want to ensure that all intellectual property is owned by the company. If trademarks, service marks or patents are required to be registered, be prepared to show the potential buyer documentation of such registration. Depending upon the nature of the business, most employees should have signed a confidentiality and proprietary rights agreement. This will ensure the intellectual property of the business is protected and belongs to the business and not the employee.
Employee Information: Prepare all information regarding employees, such as date of employment, salary, employee handbook, any information regarding employee benefits, employment agreements, and any written performance reviews.
Real Estate: Have all information regarding real estate, including deeds, mortgages, leases, property taxes in the case of owned real property, certificates of occupancy and other diligence materials that may be required in the event the business is the owner of the real estate. If the business has a commercial lease, think in advance about the length of the term of the lease and whether the lease can be transferred to a buyer. Many times, the buyer will have to negotiate with the landlord regarding the terms of the lease if it is to be transferred.
Information Regarding Clients or Customers: All contracts, sales revenue, percent of the total revenue of the business that comes from each client or customer. Any threat of termination of the contract by a client or customer?
Vendors: All contracts with vendors, any vendor that accounts for 5% or more of the purchases of the company, any threat of termination of the contract by a vendor?
List of Assets: Be prepared to disclose the condition of any equipment and date of probable required replacement, as well as the cost of replacement.
There will be various other items potential buyers will want to review when they conduct their due diligence of your business. The important thing is to have all records organized and if there are any potential issues that can be handled before the sales process starts, do what you can to tie up loose ends Examples could be threatened litigation, the absence of signed agreements, etc.
The first thing a business owner should do when they have decided to sell their business is to get the team of professionals on board that will guide them through the process. The team of professionals that are absolutely necessary is a certified public accountant with experience in the sales/acquisitions of businesses, as well as valuation of businesses and a business lawyer that is very experienced in business sales and acquisitions. Depending upon the size of the business, it may be wise to engage the services of a broker. The broker can create a sales document for the business. A broker may also provide several potential buyers that are interested in the business, which can create a bidding situation. This can increase the price that you get for the sale of your business. While brokers do charge a fee, the amount can often be negotiated. The broker’s fee may more than pay for itself if the broker provides a bidding environment that increases the purchase price.