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Five things you need to know about selling a business

If you are thinking about selling your business, it’s important to know what the sales process involves. This will help you prepare and put you in good stead to get the best outcome possible. So, where to start, what’s involved, and what are the critical success factors when it comes to M&A?

Knowing what’s involved in a sale process

Every sale process is company-specific and therefore unique. It is also a complex exercise, generally taking from a minimum of six months up to several years including the preparation phase, which is an essential element of every successful sale. Although there is no standard formula, this process can be easily divided into a planning phase and an execution phase. So, how is this time spent?

 

It’s the first phase that requires the biggest investment of time. This is when you need to put in the hours to make your business as attractive as possible to potential buyers. These preparations – be it getting your books in order or building brand awareness – can’t be done overnight; they take time to plan and implement. That’s why, ​​ideally, you should start preparing your business for sale at least two to three years before going to market.

THE SALE PROCESS

The execution phase usually consists of approaching buyers, due diligence, and a stage of

negotiation and closing. If you have an M&A advisor they can do a lot of the heavy lifting, but your input and involvement are also key.

There’s more to a deal than the sales price

Chances are you have built your company from the ground up, so it’s only natural that you will have expectations or hopes regarding the price that will be paid for the business.

 

The trouble is many owners believe their business is worth more than it really is. There are a number of reasons for this. An owner might find it hard to be objective about a business that has great personal value to them. Or maybe they are basing their expectations on past sales. Whatever the reason, unrealistic price expectations can hinder the process, so it’s a good idea to get an objective assessment of the real-world value of your business.

 

The other important factor to consider is that the price paid for your business is only one part of a successful sale process. The terms of the deal (for example how, when and under what conditions the purchase price is paid) as well as intangible aspects, such as a non-competition agreement, are equally important to maximizing the transaction value.

Transparency is key

You may be wondering if the buyer cares about why the business is for sale. The answer is yes, most definitely. A buyer usually wants to know why they should invest in a business that is up for sale. And it’s important to be honest – not being fully transparent can lead to legal problems if it appears that you have purposefully withheld information to achieve a better outcome.

 

Keep in mind that your reasons for selling will influence your negotiating position and possibly the price or the terms of the deal. Selling a business because you want to retire is not the same as a sale due to financial distress – each has their own pros and cons.

 

The important thing is to be transparent. By communicating your reasons for selling in a clear and detailed manner, you will be able to alleviate any such concerns that potential buyers may have.

Transition process requires trust

When selling a business, it’s also important to consider what role you wish to play in the future of the company. Your involvement does not have to end once the deal has been closed. Indeed, most buyers want the former owner to remain on board to help facilitate the transition process – which can take anywhere from three months to five years.

 

Consider what commitment would work best for you. Perhaps you want to stay on as a part-time consultant. Or maybe you would like to be a full-time employee. Remember, however, that your role in the business will also depend on what the buyer wants and the nature of the company.

 

The key point is that buyers want to be confident that the transition will go smoothly. Showing that you are willing to help after the transaction is a good way to do this. Establishing a strong management team that is independent of you will also boost buyers’ confidence.

A team effort gets the best results

Selling a business involves lots of moving parts, and one of the most common mistakes owners make is trying to juggle them all on their own. When it comes to the sales process, it’s a good idea to seek support from an M&A advisor, a lawyer and a tax expert.

 

An M&A advisor will be able to manage the process – from helping prepare the business for sale and providing an objective assessment of your company’s value to finding buyers, facilitating the due diligence process, and negotiating the terms of the deal.

 

A lawyer will take care of the legal issues during this process, such as the purchase and sale agreement as well as other related agreements.

 

And finally, a tax advisor should be involved in helping to prepare the business for sale, structuring the deal, and taking care of issues connected with the closing of the transaction.

 

While every sales process is unique, having a clear idea of what it entails will help you better prepare yourself and your company for what is to come. Good planning, the right advice and a lot of hard work will put you on the best path towards a successful outcome.

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