Note: This is the third in a series of three articles on preparing for the sale of a business. It is a summary on Mr. Lyons’ popular book, Exit Strategy: Maximizing The Value Of Your Business.
In parts one and two of this series, we established that selling a business is the final part of the owner’s role in building it, and that, with some strategic planning, including retirement and estate planning, owners can maximize the value of their businesses, minimize the tax consequences, control the timing of the sale, and ultimately reach their personal financial goals.
In this article, we look at the process of selling a business, which some may compare to a real estate transaction. The truth, however, is that selling a business can be exceedingly complex, and require experienced advisors quarterbacked by a seasoned business broker to maximize the value of the business and minimize the tax ramifications.
Preparing the physical appearance of the business real estate may increase the confidence the buyer has in the continued maintenance of the business. Remove unused machines and old furniture, repair broken fixtures, and paint the facilities. These types of measures cost little for the potential impact they make.
With the facilities cleaned up, it will be time to begin marketing the business. Prospective buyers will receive a short “teaser” letter from the business broker. The teaser provides enough information to entice the buyer to make an inquiry without disclosing the name of the company.
After a financial screening process and the signing of a confidentiality agreement, the business broker will provide in depth information about the business.
Who are these buyers? A seasoned broker will identify key buyer markets and should target those who can potentially afford to pay the most for the business. They may be competitors, vendors, manufacturers, distributors, private equity firms or any number of people who can maximize the profitability of the business.
Once a committed buyer emerges and a Letter of Intent is signed, the buyer and seller enter a period of due diligence. During this period, the buyer and his or her accountant will scrutinize every aspect of the business: All financial records, real estate, titles, leases, intellectual property, sales and management personnel, operations, key employees, customers, and much more.
In short, the buyer becomes intimately knowledgeable about the business.
The due diligence period is based on trust and confidentiality. A prospective buyer must sense that he or she is receiving the best information possible, and that nothing is being withheld.
When the buyer is comfortable with the due diligence review, it is time to proceed to the closing. Building trust between the buyer and seller is essential to closing the deal. Throughout the marketing and due diligence, there are opportunities for the seller and buyer to come to know each other and develop a relationship built on trust.
The deal will be painstakingly described, in all of its legal glory, in the purchase agreement and any supporting documents. Yet, there is still some negotiating to complete. It will take an experienced business broker and a skilled team of advisors to work with the buyer’s team to find mutually acceptable compromise in order to close the deal.
At this point the lead in negotiations usually shifts from the business broker to the M&A attorney so that the both sides can work out the final details of the agreement.
When each party is comfortable with the purchase agreement, the deal is signed and completed. The actual closing event tends to be anticlimactic. The transaction attorney will provide a closing book, which will contain copies of all the closing documents. This, along with life’s other important documents, such as wills, trusts, financial statements, property titles, etc., should be filed in a home safe or a bank safe-deposit box.
Selling a business is a complex process that requires vigilance and persistence. Deals don’t just happen. They need a driver—a quarterback to make sure they are completed. The business broker is that quarterback.
Article By: Thomas W. Lyons
Thomas W. Lyons is founder and principal partner of Faelon Business Brokers, a Minneapolis-based mergers and acquisitions advisory firm. Mr. Lyons is author of Exit Strategy: Maximizing The Value Of Your Business and conducts seminars based on the book for business owners and advisors. For 35 years, Mr. Lyons has owned, operated, bought and sold businesses; for the past 25 years, he has advised and represented owners in buying, selling and planning for business exit strategies. He is also the host of Today’s Business Radio.com and can be heard on 830 WCCO at 11:00 a.m. on Saturdays.
More information and the book can be found at www.faelon.com.
Legal Disclaimer: This article is intended for informational purposes only and by no means should replace or substitute other legal documents (governmental or non-governmental) reflecting similar content or advice. If you have any questions concerning your situation or the information provided, please consult with an attorney or an HR Professional.
