Today’s information sources teach us that it is essential to prepare in advance for the sale of a business. Surely many people have heard stories about how an investor appears out of nowhere, ready to buy the company immediately. I admit that this has happened a few times, but it is mostly fiction or an embellishment of reality. The truth, proven by years of experience, is that selling a business requires long and careful preparation.
What is behind the concept of ‘preparation’, and what steps should an owner take to sell a business for the best possible price?
- Think like a buyer.
99% of investors want to know about severance packages, the obligation to provide jobs for key management, collective bargaining agreements, and other personnel commitments
Competent preparation begins with seeing the sale from the buyer’s perspective. What he expects from the deal, what factors might influence his decision and what arguments he will use to discount the price? It is important to consider not only the obvious market and business conditions, but also the situational factors of the key players in the transaction (e.g. family circumstances) and the unique aspects of the particular business for sale.
How to prepare your business properly for the sale? It is impossible to optimize the value of a business without communicating effectively with all parties who are planning to benefit from the transaction and managing this information in dialogue with buyers.
Thinking like a buyer means understanding the investor’s goals and managing the value drivers based on that. The price of the deal depends heavily on who is making the purchase: the strategic partner, who is interested in increasing market share, or the financial investor, who wants the deal to pay off as quickly as possible. Correctly presented information, strategically aimed at a potential buyer, will show them the value of your company and give them confidence in the financial outlook.
Many people, because of their busyness, prefer to sell their business online with the help of a company that finds a buyer and accompanies the whole process. One of the most popular firms for selling a business is Websiteclosers.com, with these specialists you can not worry about a successful transaction.
- Setting goals.
Setting clear objectives for selling a business is not as easy as it might seem at first glance, because the interests of each shareholder, their family members, and employees often have to be considered. For example, there is often an internal conflict of shareholders who want to simultaneously maximize the value of the company, however long it takes, and close the deal as quickly as possible. Another difficulty can be, for example, the incompatibility of the owners’ wishes, when they pursue different goals simultaneously, from price increases to employee well-being.
When formulating your objectives, you first need to answer a number of questions. Is there anyone in the family who expects to inherit the company? How do I prepare my business for sale so as to protect my wealth during the handover to the new owner?
- Team selection.
Uncontrollable events can disrupt the sales process and distort the company’s value. Preparing for the sale process should begin with selecting an experienced M&A advisory team. Experts will be able to oversee the entire transaction process, ensure that the company’s operational efficiency is not compromised, help maximize the value of the transaction, and – most importantly – be able to predict uncontrollable events and manage risk.
It is important that the seller’s team: advisers, accountants, lawyers, investment bankers, board members, and key employees, work together towards a common goal and see the sale process in the same way. Conflicting positions undermine investor confidence and reduce the effectiveness of the sales process.
- Conducting Due Diligence and staffing
Initial preparations for a sale begin with the Due Diligence process – a detailed, independent audit of a company’s key indicators. The main purpose of due diligence is to identify and ‘cure’ risks that could lead to a reduction in price. Due Diligence lays the groundwork for the sale by improving weak areas: technology, personnel, customer structure, contracts, valuation models or financial statements, etc. Later, closer to the sale, Due Diligence will lead the buyer and seller to a deep understanding of all the nuances that they need to learn in order to successfully complete the transaction.
The owner should be prepared for the fact that in the process of “recovering” the business it may be necessary to audit financial statements, improve the accounting system and ensure the protection of the company’s intellectual property rights. But practice shows that the biggest risks are related to human resources and tax incentives.