When it comes to selling your business, what you don’t know can cost you (a lot!) | Bradley Arant Boult Cummings LLP

[co-author: Oliver Cone*]

The reasons for selling your private company are very individual. You may have taken your business a long way and are now ready for your next challenge. Now could be the time to retire and turn the considerable value you’ve created at the company into cash you can bank. or maybe the strong relationship you once had with your business partner is at an end. Whatever the reason, once you have made the decision to sell your business, the question is what comes next.

Most private business owners complete a sale transaction only once, but it will be the most consequential deal of their lives. It is therefore crucial that the majority owner is willing and this post provides guidance for those considering this path.

preparation for sale

Before the business owner considers selling a private business, it is important that they understand the nature of the sale process, the anticipated timeline, and the preparation that will be required for the end result to be successful.

• Selling a business is a complex process, not an event. From beginning the process to completing a sale, it typically takes six to eight months, including preparation, but it can take longer depending on a number of factors. This timeline may be extended if a potential buyer does not show up in a timely manner, if multiple prospects create a bidding process, if due diligence becomes more extensive, or if there are issues that require more extensive negotiation such as: B. contracts for key employees, transfer of intellectual property rights or dealing with special liability issues such as environmental concerns.
• Nothing replaces extensive preparation. A company is not a loaf of bread, and it is more than just its financial statements. As a result, significant rewards can be achieved if the owner invests the time and money to develop a compelling story that will appeal to discerning buyers. This includes compiling the data buyers want to review, validating financial results with a Quality of Earnings (QoE) report, and presenting the company’s potential in the best possible light.
• Buyers pay for the future. Continuing with the previous point, the owner must provide potential buyers with a clear path for the future growth of the company to maximize value and that the company has what it takes to get there. The owner knows best what opportunities exist for the company if it had sufficient time and investment capital to realize them.

The role of the owner in the sales process

While it may seem logical that the focus should be on the owner as the one who drives the sales process, in most cases this is not the best approach.

• The owner should stay in the background. If the owner seems indispensable to the ongoing business, this is interpreted as a risk by the buyer, knowing that the owner will resign at some point after the transaction is completed. The owner will therefore want to point out current and future leaders of the company to show that they are more than capable of helping the company grow and thrive when he or she departs. Additionally, the owner should not wait until the transaction is nearing completion before handing over responsibility to key members of the management team.
• Master the critical details. The sales process involves an extensive analysis of things that the owner intuitively knows, but which the company may rarely track and document. The owner should not expect the buyer to simply take the owner’s word for these things and they should be documented. Examples include: (i) the margin profile of the company’s products or lines of business, (ii) the tenure and turnover rates of employees, (iii) the nature and duration of top customer relationships, and (iv) the terms of important agreements, egRental contracts, customer and supplier contracts.
• Engage with more than one potential buyer. Involving more than one buyer in the process is likely to increase the perceived value of the business and therefore the owner is advised not to deal with just one prospect. A gallop between several viable buyers gives the owner bargaining power and ends up getting the best price.
• Random actions can cause real harm. The process should be targeted and find only the most profitable/attractive buyers with a rifle shot rather than a shotgun. This is the best way to ensure the confidentiality of important information, protect important customer and supplier relationships, and eliminate fear and anxiety among employees.

Make the process a team effort

There are many different facets to the selling process and the owner will experience a lot of stress and likely drop some balls if he or she tries to do this unaided.

• You need help from your team. The owner has built a viable, thriving business and there are too many questions for one person to answer. The owner should involve trusted associates in the sales process and communicate clearly with them why the transaction will be good for the company and its team members. Establishing financial retention mechanisms can allay employees’ worries about life after the transaction.
• Hire experienced professionals. Finally, the optimal result is more likely to be achieved when the owner engages professional M&A advisors who understand the industry, who are able to identify the best potential buyers to purchase the company and who will approach the company to them can present buyers in the most favorable light.

Diploma

Selling a business is a big deal and should be approached in a strategic, coordinated manner, with the understanding that it will require a tremendous amount of effort. When the owner has collected all the necessary information, he burns the candle at both ends. And navigating uncharted waters when so much is at stake creates high levels of stress. The good news is that there is a proven path to success and there are seasoned professionals available to help along the way. The end goal will be worthwhile if the sales process is managed in a way that allows the owner to reap significant financial rewards for years of effort and sacrifice.

*Oliver Cone, Senior Vice President at Bulkley Capital. Bulkley is a Dallas-based M&A advisory firm that manages bespoke sales processes for private companies in the United States valued at $15 million or more. Oliver Cone is not an attorney and the views and opinions expressed in this article do not reflect those of the firm.