Selling a business is much like selling any other big-ticket item. You wouldn’t sell your house, for example, without appropriate renovations, understanding your property value and the market at large, and assembling the right team to plan and execute the sale. The same is true with your business.
Advisors Assemble!
First off, you’ll need to put the right team together to see the business sale from start to finish. An accountant or tax advisor can help with valuation and recordkeeping, and most importantly, how to structure a tax-friendly sale. A mergers and acquisitions attorney can review necessary legal documents, as well as navigate negotiations and the sales process, including drafting business purchase documents that account for the business entity itself, operating assets, intellectual property, real estate, financing, security agreements, and the like.
Valuating Your Business
Identify Strengths and Weaknesses. Your best tool in preparing to sell your business is an understanding of how much it’s worth. This should be no surprise. But less obvious is that a professional, comprehensive business valuation can expose both the strengths and weaknesses of your company. Get an early business valuation by an accountant or another expert who has access to trending national data and experience selling businesses in your industry. Then, identify areas where your business is devalued and focus on improving them between now and when you start entertaining buyers.
Find your Negotiating Range. You and your accountant or auditor should be careful to identify special, non-ordinary expenses that skew financial statements and in turn affect profitability determination. When you’ve come down on a value, identify your price range: the space between your ideal return and your bottom line. Knowing this will give you the insight to negotiate confidently.
Organize Your Documents
Financial Records. Commercial buyers will need a sufficient sample size to properly evaluate the health of your business. Be prepared to provide at least three years of financial information for analysis. And you’ll of course want that information to showcase a smoothly-run operation; if you have the luxury of time, develop your records in conjunction with a practice strategy to improve weak areas identified in your valuation. Consider having financial statements prepared externally by an expert – this will make an impression on buyers and ease their due diligence process.
Legal Documents. As with your financial records, do a legal document review. Ensure that you have your bylaws or operating agreement, licenses, leases, customer and vendor contracts, and any other documents that coincide with operations. Make sure these legal docs are up to date and accurately reflect the state of your business. If you have business relationships that you know are valuable but have never been reduced to a written contract ( “handshake deals”) or are documented but need to be renewed, now is the time. It’s an easy way to add value. If agreements may be unattractive to a purchaser, renegotiate with the supplier or client. If you have a business process or invention, explore a patent; seek trademarks for your brand and copyrights for qualifying products. These are all viable ways to curb risk and bump business value.
Each arm of preparation for selling a business is interrelated, intensive, and rewards foresight. The best takeaway advice for a business owner is to start planning early.
Gene Friedman is a partner at Gertsburg Licata in the transactional practice group. He may be reached at (216) 573-6000 or at [email protected].
Gertsburg Licata is a full-service, strategic growth advisory firm focusing on business transactions and litigation, M&A and executive talent solutions for start-up and middle-market enterprises. It is also the home of CoverMySix®, a unique, anti-litigation audit developed specifically for growing and middle-market companies.
This article is for informational purposes only. It is merely intended to provide a very general overview of a certain area of the law. Nothing in this article is intended to create an attorney-client relationship or provide legal advice. You should not rely on anything in this article without first consulting with an attorney licensed to practice in your jurisdiction. If you have specific questions about your matter, please contact an attorney licensed to practice in your jurisdiction.
