It’s time. You are ready to move on. Perhaps you need to make time (or money) for a new opportunity. Maybe you’re tired of the risk associated with being a business owner, or you just want to spend more time with family. You’ve already figured out the “why,” but now it’s time to establish the “how.”
When you’ve finally decided it’s time to sell your business, it’s important to employ tactics that will keep the sale on your terms. Through experience, we’ve come to learn that there are five key factors to ensure a successful exit:
- First (and most important), your team. Working with people experienced in exits will make the process run much more smoothly.
- Second, diligence. Do the dirty work before someone else does.
- Third, your personnel. Your employees have to be managed differently in preparation for a sale.
- Fourth, confidentiality. Keep things quiet until the time is right.
- Finally, your stakeholders. Make sure you have backing from the people you need support from to sell your business.
Now, let’s get into the details.
The Team: Companies must have the right advisory team in place before they try to sell. Lawyers and accountants will make the process of selling a much easier transition, ensuring that you are not setting yourself up for unnecessary challenges.
The attorneys or accountants already retained by your business might work; however, investing in lawyers with experience in exit transactions will ensure a better result. Some businesses may need specialists, such as inventory valuation consultants or real estate appraisers, especially if there is a value component that will not be apparent from an examination of the company’s books.
You may already have a strong team in place, with connections to buyers and experience in exits. If not, it could be worth your time to consult with investment bankers, who will be able to connect you to buyers and offer valuation advice and related financial services. Again, depending on the size of your company, you may not have to look very far for someone who can help with this consideration.
Do Your Due Diligence: When looking, potential buyers will perform a thorough scrub of your business. You should take on this task before they do.
Some primary ideas: make sure your corporate minutes are up to date; find copies of all licenses to do business or necessary government approvals; be sure all tax filings are current and complete. Any company leases should be reviewed. Check to see if there are any restrictions in the leases about selling to a new buyer.
In an internal review, look for miscellaneous contracts. Find any contracts that will remain with the business after the sale and might be important for a buyer to know about. Do you have any contracts outside of ordinary business that will need to be discussed with buyers? Determine the type of contract, the duration of a contract, and the scope of the contract (how can the buyer cancel or negotiate it to a more palatable version).
It is also important to research any claims against the company. Such claims could be from employees, customers, investors, or others. Buyers will find this information out; it’s important to have responses ready and to troubleshoot potential problems before they arise. This is not just limited to lawsuits that have been filed. Demand letters, verbal complaints from dissatisfied employees, and similar potential claims should be disclosed. Failure to disclose this information up front can lead to major issues.
Personnel: When you sell your business, it can be incredibly stressful for employees. There is uncertainty in transitions, and that uncertainty can affect performance. Employees need to feel secure and fairly treated.
Think about whether or not to offer a retention or change of control bonus. It could be worth the price to ensure productivity. If there are key people that need to be kept on board, offer them incentives — protections once the deal closes or severance benefits, for example. Essentially, keep your employees happy and working despite any apprehensions you might have about the future.
Confidentiality: While it is important to keep your staff happy, it is also important to keep them quiet. Loose lips sink ships, or in this case, loose lips sink exit transactions.
If too many people know about the sale before it goes public, they can unintentionally create a big problem within your company. Use discretion when deciding who “needs to know”. If a prospect of a sale gets too widely disseminated, it can hurt productivity (and thus, the value) of your company. The incentives and security mentioned previously can aid in motivating your staff to maintain confidentiality.
Discretion also needs to be used when going to the marketplace. It’s advisable to get nondisclosure agreements with potential buyers, but people will still talk. You have to be mindful about whether it is the right time to approach specific buyers. For example, if you went directly to a competitor to sell, they would likely be able to use that information to harm your profits. The “right” time to reach out varies depending on the size and scope of your business; that’s why it’s incredibly important to have a strong team of lawyers and other advisors, so they can give advice specifically for your business.
Gauging Your Stakeholders: If you try to sell your business without the support of your stakeholders, you will be in for trouble.
Find out the perspective of your board; ask where the members stand in terms of interest in the exit. You will need to do some political mapping of your shareholders’ votes. Will they, as a body, support an exit? If so, what assurances will they need to vote that way? Finally, if you have third party financing (or other outside investors), figure out how to get on track with them to be in a position to sell the company. This is where the lawyers and accountants come in particularly handy.
Some factors can end your deal before it even starts. Both internal and external forces can work for or against you. Before you sell your business, make sure you put yourself in the best position you can by considering all possible road bumps and prepare to ride through them. Work to find external support and gauge your internal support, because you cannot sell your business alone.
