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Selling a company is a complex and multifaceted endeavor that requires comprehensive planning and expert guidance. Below are key considerations to bear in mind, along with explanations and use-cases for each. The use of M&A consultants is a necessity for any good exit strategy.
- Concept: Align the sale of the business with your long-term estate and financial planning goals. Estate planning attorneys will be crucial here.
- Use Case: Before initiating the sale, consult estate planning experts to optimize the potential tax implications and to ensure the proceeds align with your retirement or investment plans.
- Concept: A competent Chief Financial Officer (CFO) can be instrumental in providing accurate financials and creating forecasts that are credible to buyers. The CFO will be the key contact point for investment bankers, private equity, auditors, and private buyers. Ensure your CFO is well-versed in a transaction process, or you have a consultant or fractional CFO with experience.
- Use Case: Ensure your CFO prepares all financial documents and performance metrics to a standard that meets due diligence requirements. This can significantly expedite the transaction process.
- Concept: Understand the difference between strategic buyers (other companies in your industry) and financial buyers (private equity firms, individual investors). Financial buyers usually keep senior management as they may not understand the industry.
- Use Case: Strategic buyers may value your business more highly due to synergies, whereas financial buyers are generally looking at your business purely as an investment. Tailor your presentation and negotiation strategies accordingly.
- Concept: Specialized M&A legal counsel can guide you through the intricate legal landscape associated with selling a business.
- Use Case: A seasoned M&A lawyer can handle the sales agreement, nondisclosure agreements, and due diligence, thus reducing your risk of legal complications.
- Concept: Apart from a specialized M&A lawyer, having a general lawyer who is deeply interested in your business can provide additional, personalized legal scrutiny. M&A lawyers will be interested in the sale, while your own lawyer will be interested in your business.
- Use Case: This lawyer can cross-check the terms and agreements to make sure that not only are they legally sound, but also align well with the specific needs and nuances of your business.
- Due Diligence: Prepare for exhaustive due diligence by potential buyers. Have all your business records, contracts, and compliance documents in order.
- Business Valuation: Employ an expert to accurately value your business. An under- or over-valuation can either scare away potential buyers or undersell your business.
Taking these steps can go a long way in ensuring that the sale of your company proceeds as smoothly as possible, maximizing your return while minimizing risks and complications. In addition to having a business valuations consultant, you should first audit your own books with third-party consultants to ensure your finances are correct. This will help massively with any valuation.
- Concept: A well-thought-out exit strategy provides a roadmap for transitioning out of your business.
- Use Case: Consider whether a phased exit or immediate handover suits your needs and the business's continuity. Align this strategy with prospective buyers early in the process.
- Concept: Ensure that all intellectual property (IP), such as patents, trademarks, and copyrights, are in order.
- Use Case: Legal documentation of IP can add significant value to your business and can be a selling point during negotiations.
- Concept: Conduct a full health check of your business, including SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis.
- Use Case: Use this information to address weaknesses and leverage strengths during the negotiation process.
- Concept: The state of your team can be a key factor in the sale. Additionally, during this time, staff will be understandably nervous. Most mergers or transactions result in a reduction of headcount. If a financial buyer is pursuing your business, they will usually keep you and senior management on as experts. This will be the time to argue for no reduction to headcount.
- Use Case: Ensure key staff are informed and possibly incentivized to stay on post-sale, as this can add value to the business. Allocating a portion of your business to your staff is a great way to keep them as stakeholders.
- Concept: In addition to your CFO's valuation, consider a third-party business valuation for an unbiased assessment.
- Use Case: This adds credibility to your asking price and can serve as a solid negotiating point.
- Concept: Employing external accountants to clean up your books adds an extra layer of credibility and assurance for potential buyers.
- Use Case: These professionals can correct any discrepancies, ensure compliance with accounting standards, and make financial statements more understandable and transparent. A clean financial record can expedite the due diligence process and enhance the perceived value of your business.
- Concept: A business’s value is often tied to its customer relationships and contracts.
- Use Case: Secure long-term contracts and resolve any outstanding customer issues to make your business more attractive to buyers.
- Concept: The best time to sell may depend on market conditions in your industry.
- Use Case: Research or consult experts to determine whether it's a seller's or buyer's market for your specific business type and plan accordingly.
- Concept: EBITDA serves as an indicator of a business's operational profitability, separate from financial and accounting influences. This is one of the biggest factors innto how much your business sells for.
- Use Case: Many buyers use EBITDA multiples specific to your industry to estimate the value of your business. Make sure your financials are in order so that EBITDA calculations are accurate and favorable. Well-documented EBITDA can be a strong selling point in negotiations.
Interested in selling your business? Talk to us to see how we can help.
