The Business Sale: Initial Considerations
The following is information you may want to share with your client at any time in the succession planning and business sale process. It will help the client understand and prepare for the process.
Understand The Buyer’s Perspective & Position
In a business sale, it is important to understand what buyers want out of the deal. Taking their perspective into account ensures that the seller has realistic expectations and is positioning the business in such a way that it is attractive to buyers.
The bottom line is that your client is probably not going to get exactly what she wants out of the business sale—all cash and no risk. She will have to negotiate (through the M&A advisor) to get the best possible price and terms while letting the buyer win as well.
Buyers are sophisticated and they want exactly the opposite of what sellers want: the lowest price and the ability to defer as much of the payment as possible. Buyers also prefer to buy assets, whereas it is better for sellers to sell shares.
Many buyers will expect seller financing or an earn-out. This allows them to defer a portion of the payment but it increases the risk to the seller. However, providing financing or agreeing to an earn-out can result in a higher overall return to the seller and it shows the buyer that the seller has faith in the future of the company.
It is also critical to avoid trying to hide anything from potential buyers. During due diligence the buyer will uncover anything that has not been disclosed and trust will be broken. This can be fatal to the deal.
Ask The M&A Advisor
Many people feel stressed during the months it takes to complete a business sale. There are a lot of unknowns and concerns. To help reduce the stress, encourage your client to sit down with the advisor early in the process to get the answers to any questions or concerns about the business sale.
Common questions that my clients have include:
- How do we handle confidentiality?
- What happens if there is a breach of confidentiality?
- When should I tell my management team or other employees about the sale?
- How can I look after my employees?
- What will happen after I sell my business?
- How long will the whole process take?
- What can I do to help ensure my success?
Begin To Gather All Documents That Will Be Required For Due Diligence
After your client has accepted an offer, the buyer will want to investigate the business before closing. During this period of due diligence, your client will have to provide any documentation the buyer requests so it can be reviewed. If information is gathered early in the process, the client will be ready to give the buyer whatever is required immediately upon request, speeding up the process.
Although more information will likely be required later in the business sale process, you can advise your client to begin gathering the following:
- Financial statements for several years
- Tax returns for several years
- Corporate books and records
- All contracts and agreements
- Plant, property, and equipment details
- Regulatory compliance records
- Insurance records
- Organizational chart
- Sales by customer
- List of suppliers
- Patents, trademarks, and other intellectual property