How To Prepare Your Business For Sale
When you are hoping to sell your business, preparations need to begin long before you list the business for sale. Preparing your business involves more than just cosmetic upgrades. There are many behind the scenes tasks that have to happen to prepare appropriately.
Your Advisory Team
Picking the people that will advise and assist you in the sale is incredibly important. Your advisory team will help guide you through the sales process and will help facilitate the deal through closing. Your advisors are essential.
At a minimum, a seller should engage a legal advisor, an accountant, and a broker or investment banker.
The seller may also need to get specialists depending on some aspects of the sale. Ideally, the seller will have some key employees who know the ins and outs of the business involved in the process as well.
A legal advisor, which can be a general counsel or outside counsel, for example, has several essential duties. The legal advisor drafts and negotiates the documents and helps coordinate and organize due diligence and the closing. You may need a legal specialist as well, depending on the deal (e.g., an environmental law specialist).
An accountant is also an essential part of the team. An accountant will help prepare financial statements and projections that the buyer will want to review as part of its due diligence. The accountant will also help you pinpoint and resolve issues in your books before financial statements are provided to a potential buyer during the due diligence process.
A broker or an investment banker is often part of the advisory team to assist in marketing the business to potential buyers. A broker or an investment banker will also assist in valuing the business and facilitate the gathering of due diligence documents and populating a data room or shared folder.
Due Diligence and Other Concerns
A seller should perform due diligence on itself before embarking on a sale process. Doing so will help you spot potential issues to resolve before the sale to avoid delays. Essential aspects of the target business that the seller should review include the target’s financial statements, material contracts, and entity documents.
Financial Statements – these should be reviewed by the seller to clean up any accounting issues, to confirm all taxes have been paid and filed, and to confirm that the financial statements support the desired sale price.
Material Contracts – these should be reviewed to determine whether they can be assigned to a buyer and what consents or approvals (if any) are required to do so.
Entity Documents – these should be reviewed to determine the consents or approvals required to sell the target company.
Before disclosing any confidential information, the seller should have any potential buyer sign a confidentiality agreement. Setting up guidelines for the use of the information traded between the parties will protect the seller and buyer.
Finding a Buyer
Typically, a broker or investment banker will assist a seller in finding and qualifying a potential buyer. A seller may want to consider deal terms other than the purchase price and the terms for payment of the purchase price. For example, a seller will want to verify that the buyer has the financial ability to close the transaction and the capability of running the business post-closing.
Another consideration is whether the buyer will need transition services from the seller after closing. If a seller is not interested in assisting post-closing, the seller may need to find a buyer that has the experience and the people ready to step in a run the business after closing.