Selling a business requires a great deal of time and effort on both the buyer's and seller's behalf. In addition, determining the right time to finalize the transaction can make a huge difference in the price.
Obviously, determining when to sell a business is primarily the seller's decision. To help determine the optimal time to sell your business, here are 12 questions to consider:
Who is the ideal buyer for the business? Specifically, what attributes does the buyer need in order to complete the acquisition and successfully operate the company? Has anyone expressed interest in the past? Are those individuals appropriately qualified to make the purchase?
Do you have the appropriate team of advisors available to help complete the sale? For example, does your attorney have the appropriate experience reviewing the purchase agreements?
Do you know what the business is worth? Can you provide support to a potential buyer, for example, a third-party valuation report? If the buyer engages a valuation expert, do you have all of the appropriate information readily available to support their efforts (financial statements, customer lists etc.).
What role do you wish to have after the acquisition? Would you like a consulting contract or other position for yourself and other executives? Further, what level of income do you need to support your current lifestyle as well as your personal goals once the business is sold?
Is the business currently performing at a level that would attract buyers? If not, what steps do you need to take to improve the operations?
Do you have the right team in place? One important asset you're selling is the employees who work at your company. From the buyer's point of view, is the team properly trained and is there a winning company culture?
What about the outside team? In addition to the employees, you are also selling your customer base and relationships with vendors that took time to build.
Are the company's financial statements reviewed or audited by a reputable accounting firm?
Have you documented all of the company's processes and procedures? Do they accurately detail how the business performs on a day-to-day basis?
From a buyer's perspective, does the business have a strong track record of financial performance? How confident would a buyer be that the business will maintain or improve once bought?
Have you considered how the sale should be structured for federal tax purposes? The tax consequences can vary widely depending on how long you've owned the business, the type of entity (C corporation, S corporation, LLC, etc.) and exactly how the deal is structured. By planning ahead with your tax advisor, you may be able to substantially reduce the tax bill. Don't forget to assess state and local tax issues.
What will you tell employees, vendors and shareholders who may hear about a proposed sale? Controlling rumors is very important in terms of keeping the company operating at peak performance.
Words of Caution: Be careful not to invest too much time in one potential buyer. A buyer may not complete the transaction so it can be a smart move to negotiate with two or three potential buyers, at least in the early stages of the sales process. Doing so also creates the potential for a bidding war.
Keep in mind that sellers, as well as buyers, must conduct due diligence investigations. For example, assess the creditworthiness of a potential buyer by obtaining credit reports and financial statements. Also, check the buyer's business reputation and management experience. Do an internet search for information about any unethical business practices the buyer might have engaged in. Check public records to uncover any outstanding liens and judgments against the buyer or related parties, undisclosed litigation, and so forth.
Once all of the questions above have been addressed, consider developing an offering memo that summarizes the key elements of your business. The information needed to complete the memo can often be derived from your company's five-year business plan. It should include the history of the company, a list of markets or customers served, financial performance to date, as well as general comments regarding future growth potential.
About Romanchuk & Co.
Romanchuk & Co. is a boutique investment banking and CPA advisory firm, dedicated to providing candid, independent, and sound financial insight and consulting services to lower middle market companies and their owners. With a focused expertise in energy, power, infrastructure and oilfield services, construction and niche manufacturing, we specialize in sell-side M&A advisory services, advising owners on the preparation and sale of their company, assisting them in identifying strategic opportunities and then helping them to execute upon those strategies. Through our CPA advisory practice, we provide independent business valuations, financial due diligence services, forensic accounting investigations, litigation support and restructuring advisory services.
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