SELLING YOUR BUSINESS -WHAT TO EXPECT
Entering the sales process with a clear understanding of what’s expected of you, as well as what you can expect from your buyer and broker, is essential to a smooth and successful sale. Here are some considerations that business owners should take into account before, during and after a business sale to ensure the best value for their hard work.
Before the Sale
No matter how big or small the business is, determining the reason for selling and what your priorities are, is key. Do you want to wait out for a cash sale, which may be harder to negotiate, or are you willing to consider taking equity in the acquiring company? Do you want to save the jobs of family members or long-term staff? These and other questions may seem obvious, but you must voice them to yourself before you begin.
Look for a trusted advisor who has sound experience and can make sure there are no potential conflicts of interest in a sale. These could be advisors such as an accountant, a tax expert, legal counsel, an appraiser or valuation expert, an investment banker and an intermediary or broker.
Once you have a team in place, work with them to understand how the sales process will work before you start. The better you understand it now, the more focussed you can be with your choices along the way.
Consider conducting a pre-due diligence process to ensure you are prepared for a potential buyer’s examination.
The process of selling a business can be lengthy. Once you start, prepare for it to take six months to a year. So, ensure that your business continues to function effectively without you throughout the sale process. The sale can take up a large portion of your time and focus if you are not careful; another key reason for the need to hire a team, as spreading yourself too thin may impact the running of the business and eventually reduce the price you might be offered.
The potential buyer should offer a letter of intent, which is an offer outlining the terms of the proposed sale, including the price, and all other important conditions. The letter of intent serves as a base for you, your buyer and your team to negotiate towards final legal documents.
You should also consider a period of transition as part of the sale process. Will you stay on to ease the transition? You will need to negotiate an agreement stipulating the terms of this. If not, how will you hand the business over and when will important employees be notified?
After the Sale
Your involvement with the business does not end the same day it’s sold. Key employees and others will receive employment contracts to stay on to see through the business transition to a new owner and depending on how the sale was structured, this can include extra incentive payments, or “earn-outs,” which are dependent on business performance after the sale.
Most business sale contracts include non-compete provisions, under which an owner’s ability to continue to do business in a certain geographic area or industry can be limited.
Selling a business is complex, and these are just some of the legal and financial considerations involved. Do not hesitate to bring in a team with experience and to take the time you need to educate yourself before you proceed. Most business owners only sell a business once. It is vital to get it right.
Venture Corporate Finance is a middle-market M&A advisory firm for clients planning to sell their businesses, raise capital, restructure, or grow with acquisitions. We provide independent advice and bespoke transaction solutions to meet their specific objectives.
For more information on corporate finance and M&A services, contact Venture Corporate Finance.