It is important to have a good idea as to your company’s value in the marketplace. You never want to price your company at such a high value that it precludes interested parties from examining your company in greater depth. And, you certainly don’t want to price your company at a value that understates its worth costing you a portion of your profits you have worked so hard to generate. But, here’s the tough part. No matter what you hear or read, there is no absolute science to pricing a company. There are so many variables that come into play when setting a value that the final price will be, at best, an educated approximation. As a result, the issue of price is typically one of the major hurdles you must overcome when attempting to negotiate the sale of your company. Also, it is important to get a good handle on the probable market value of your business before moving forward. In some cases, it may make more sense to not sell the business at all but to look at alternative options that may be available.
You need to have a pretty good idea of your tax situation you will face when you sell your company. And keep in mind to a significant degree, the amount of taxes you will pay are closely tied to the structure of the selling transaction. From the tax benefits of selling your corporate stock to the impact of selling company assets to the taxes you may be assessed from employment contracts or covenants not to compete, all of these tax aspects impact the net dollars you will take home at the end of the day. It’s very important to discuss the tax ramifications with your CPA or tax expert. Keep in mind the process of selling your company is a dynamic process that will require constant reassessments of how to best achieve your ultimate goal of generating the best possible deal for yourself.
Getting ready to sell your company is a very important step and one that tends to receive less attention than it should. As a result, we have dedicated an entire section to dealing with this issue. However, the essence of what it means to “get your company ready to sell” is pretty simple. What can you do with your company in its present form that will create the very best impression and work to generate the greatest value when it’s sold.
Marketing your business is a challenge for a number of reasons but must be done. To begin with, in many cases owners such as you prefer to not let the staff know of your intention to sell the company in order to minimize disruptions in your daily operations and not create a climate of fear among the employees. As a result, the issue of confidentiality is important when approached by potential buyers. Also, you need to determine where your potential buyer market is and how to best target that market. There are many issues that need to be addressed when attempting to market your company and it is not difficult to negatively impact your marketing effort. One example is if you chose to advertise your business, wording is important. Say too much in your ads, buyers are more likely to find a reason to exclude it from consideration and interest is diminished; say too little in your ad and either it doesn’t generate any interest and nobody calls or any number of unqualified buyers call and waste hours of your valuable time.
It’s funny but everyone jumps right into talking about negotiating the sale of your company. The problem with that is it leaves out a very important step. Before you need to worry about negotiating a deal, you need to make sure you have someone that wants to buy your business. This is where you, as the owner, take advantage of your years of running your company. You know the best aspects of your business and you need to do a good job of conveying these elements to possible buyers. What makes your business of special value? For example, is it your history of constant earnings, the durability of your customer base, unique product mix or the breath of your income stream? This is where you are the most important element in the sale of your company; nobody else can do this. Explain what makes your company rise above other investment opportunities.
Let’s assume you did your job and sold the buyer on the fact he wants to own your business. Now, it’s time to negotiate the transaction particulars. The good news is you have your buyer; now, you need to keep his interest high while structuring the best deal possible for yourself. This is a balancing act so proceed cautiously. You don’t want to be so rigid in your negotiating position that you run the buyer off. Be open to offers and suggestions made by the buyer.
In most cases, there will be a constant give-and-take during this process and you need to evaluate the impact of each aspect negotiated as the deal moves forward. You are going to discover that no single issue stands alone; they tend to be interrelated in many ways. On the other hand, whenever possible, don’t fall into the trap of revisiting issues already resolved between you and the buyer unless there is a significant rationale for returning to the issue. There are times when it is necessary to re-address an issue but be very cautious in doing so.
Great news, you have successfully negotiated a deal with your buyer. Now, you need to put those negotiations into a formal purchase agreement. In many cases you will have a “Letter of Intent” that will serve as an outline to the basic terms but there will be a significant number of issues that would not have been discussed during your negotiations. Now, this is where the term, “The Devil is in the Detail” really comes into play. From possible contingent liabilities you may face to representations and warranties the purchaser will require, these are very important and could possibly have a long-term impact on the value you ultimately receive from the sale of your company. This is where your attorney must be involved. However, before proceeding with your attorney, it is important to have a candid discussion to insure he is appropriately versed in the details of a transaction of this nature. If not, then ask him for a recommendation of either a partner or outside attorney that works within the specialty of business transfers. It is a complex process and you need to make sure you are well represented during this phase of the transaction.
Well, you, the buyer and your professionals have finally worked through all of the issues and you have a final document. Now, it’s time to close the transaction, finalize the paperwork, transfer ownership and receive your consideration. You will find at the very end this is usually a mad-house of activity; don’t worry, you will get through it.
So, the transaction is finished and you’ve been paid so everything is done, right? Well, not necessarily. In many cases, the new owner will require a transition period during which you familiarize them with the daily operation of your business. Normally, this will be spelled out in the purchase agreement and the issues of time commitments and consideration have been addressed. Be faithful to your commitment and keep a good record of your actions while fulfilling your commitment.
One last thing that we would like to suggest to you and it’s going to require the approval and involvement of the new owners. Immediately after the transaction is closed (NOT BEFORE), arrange a small gathering of your employees. You can even go so far as to call it a celebration. At this point, everyone in the company will know the business has been sold. Sadly, these people that have worked for you for any number of years are frightened and concerned about their jobs. And, it does not matter who in your company we are discussing. From your top salesperson to your best floor manager to your most skilled worker, all of them are going to be unsettled by the change in ownership. One of the factors that made your company so successful is now in a state of crisis.
Have a party and introduce them to the new owners. Have the new owners discuss their plans for the business and any exciting opportunities they see for growth and improvement. Have them reassure your staff that they bought the company, in part, because of the talented workforce and they have every intention of keeping the staff and looking to them to help move the company forward to a new level. It will only take a couple of hours of time and it will go a long way toward settling down the employees and allowing them to return to productive work instead of covert conversations about their futures.
However, if the new owners do not plan on continuing the business along these parameters, then don’t do this and don’t lie to your former staff. It’s the new owners’ responsibility to determine how to move forward with the company’s employees at this point and you need to maintain some distance.