Steps to Selling Your Business Successfully
Portland Selling a Business Lawyer
Beaverton Business Contract Attorney
6 Steps to Selling Your Business….Successfully
Perhaps there’s a health emergency in the family. Or it’s time for that first real vacation in years. Maybe a significant financial upsurge or downturn is signaling the time is right to sell. Regardless of the motivation – and there are numerous legitimate reasons to sell a business – it’s a good idea to first understand some important concepts in order to maximize one’s financial and emotional yield.
1. Know the Ropes
Before marketing your business educate yourself on the selling process. Talk to a business broker (and seriously consider hiring one – you’ll make more in the end). Understand what goes into a marketing package for prospective purchasers, how prospects will be identified, how funding issues will be resolved including what is and is not acceptable to you, and how you’ll assist the buyer in performing his or her due diligence. Will you accept an asset sale or demand a stock sale? Talk to your lawyer, CPA and any other business advisors about what you’re considering.
2. Determine a Realistic Price
Start by setting an aggressive, but realistic, selling price. If the price is too high you may not attract any buyers. If the price is set too low you risk settling for a price well below what your business is actually worth.
By determining a realistic sales price many other crucial variables may become clearer – including your estimated tax burden and your true financial yield: the amount of money you actually end up keeping. With these two figures, tax minimization and wealth preservation strategies may be introduced to ‘preserve’ as much money as possible.
3. Clean Up
Clean up both physically and financially. If you can’t focus on both at least get your bookkeeping in order. We’ve found that the smaller the business, the more intimidated are the owners at the thought of ‘cleaning-up’ the books. But the exercise is critical: buyers and lenders both want to see financial statements that are accurate and organized. This nominal investment will be returned to the Seller many times over upon sale. Without clean books, many small businesses are not even saleable. Then, clean the bathrooms and mop the floor: it’s time to put your best foot forward.
4. Tax Preparation / Planning
Once the books are in pristine condition a CPA can advise on the pre- and post-sale tax liability. Some sellers conclude sales, after sage tax advice, that result in the entire transaction being a non-taxable event. Others may incur upwards of 40% in tax liability. With one’s life’s work at stake, working closely with a lawyer and CPA can have significant ramifications in preserving one’s wealth. It’s not about how much it sells for….its how much you get to keep.
5. Find the Right Buyer….. Confidentially
Selling a business is nothing like selling a home or a commercial piece of property. (Hint: so don’t hire a real estate agent to sell your business – even if you’re selling the property with the business.) Confidentiality is crucial. Handled properly, a buyer can be identified and information disseminated without any public knowledge. Handled poorly, employees, clients, vendors and suppliers will soon know of your plans, typically compromising the value of the business.
Competitors may make the best buyers, but they also represent the greatest risk. They are least likely to keep sale information confidential and can use their knowledge against you in the future. Identifying the right buyer must be done discretely and with appropriate documentation signed. The saying is true: “Good news travels fast….bad news travels faster.”
6. Deal Structure
Once a target purchaser is identified the structure and terms of the proposed transaction are typically identified in a Letter of Intent (“LOI”) or an Offer to Purchase. Key issues will likely include price and length of time for full payment. Most sellers desire 100% cash at closing. If there is a lender involved, however, it may require the seller assume 10%-20% of the purchase price on contract, usually in the form of a promissory note. This is required to ensure the seller retains some ‘skin in the game,’ signaling his or her willingness to stand by the purchase price.
Further structural details include whether the stock or the assets are being sold, the allocation of the purchase price, how long the seller will train the buyer, non-competition parameters, key employee contracts, consulting agreements ….. The list can be as long as one might desire.
A business seller should enter the sales process educated as to some basic rules that have been gleaned from the experience of others. A smooth transaction is more likely to occur when one is aware of these six facets of a sale, and much of the emotional angst, typified in many sales, is eliminated. After years of work, perhaps your entire life’s work, business owners deserve the best exit strategy possible.
Revised by Slinde Nelson and reprinted by permission courtesy of Exit Strategies, Inc., specializing in confidential business sales and retirement transitions. Jeff Kraai, Exit Strategies’ President, may be reached confidentially at 866-280-7562 or at [email protected].