By: Scott Van Vooren
This blog post is the start of Lane & Waterman’s M & A Blog Series.
Most business owners have never sold a business before. Selling your business for maximum value is a process. It takes time, commitment, and collaboration. You should have a well-thought out plan in order to maximize the value of your business. You must have a clear understanding of why you are selling your business, which is one of the first questions you may be asked by a potential buyer.
It is important that you understand what you have to sell and your company’s strengths and weaknesses. During the course of the selling process the buyer will discover such strengths and weaknesses. Your plan should include strategies to capitalize on your strengths and improve on your weaknesses.
Put together your team of trusted advisors who will keep this matter confidential and help you with your plan. Consider trusted high level internal advisors, e.g., CFO, your outside accounting firm (for tax, accounting and valuation help), experienced mergers and acquisitions attorneys, and perhaps an outside mergers and acquisitions advisor.
You must get your internal house in order. Review your company minute book, make sure that book is up-to-date in terms of business meetings, ownership ledger, and the like. Review your company contracts to get a full understanding as to how these contracts may affect a potential buyer’s perception of your company’s value. For example, review your customer agreements and supply agreements to determine how they might be strengthened. Review the employee arrangements you have and determine whether or not you should enter into employment agreements with your key employees that are assignable in the event of an asset sale. If intellectual property is part of your company, include that in your review. Determine whether it is necessary to obtain third party consents to assign any of your agreements and whether governmental consent is required to sell your business. Make sure your tax returns have been filed and that you have paid your taxes. Check your website and make sure it has a fresh look and is relevant. A potential buyer will look at your website very early in the process. Dispense with typical private company expenses which will increase earnings before interest, taxes, depreciation and amortization. A serious buyer will do a quality of earnings analysis based on your financial statements.
Create a plan to grow your business. Show the buyer opportunities to maximize value. It is critical to keep reminding yourself during the selling process that you have a business to run.
It is important early on to keep in mind the significance of maintaining confidentiality throughout the entire selling process. One way to do that is through a confidentiality agreement with potential serious buyers, which we will discuss in later blogs. Also consider having a confidential email address which is important because in many business transactions corporate records are included as an asset of the business as part of the sale.
Scott is a senior partner in Lane & Waterman’s Mergers & Acquisitions practice group, helping clients with transactional and business matters including mergers and acquisitions, joint ventures, corporate and limited liability company formation and governance, commercial real estate transactions, and general corporate and contractual matters.