Owners looking to sell or exit their business should begin planning well in advance. The following are a few best practices that can lead to a successful transaction.
What is your business worth?
An owner needs to know the business’ value before trying to sell. That goes beyond income, revenue, debts and expenses — it is understanding what the company is worth on the open market. An owner may overestimate the value of their company, only to be disappointed with lower offers from potential buyers. An owner should get a professional valuation from a qualified adviser. There are many variables that go into a valuation so it may not be exact. However, it provides an owner with a clearer view of the state of the business. With that frame of reference, an owner is more equipped to handle offers.
Assemble your team of advisors.
Owners often try to sell their business by themselves. After all, they know their company better than anyone. However, an owner may not understand how to fairly value their company, how to market it, how to negotiate legal documents, what the tax implications may be or how to manage the proceeds. There are many complexities in an M&A transaction which, if not handled properly, can lead to unfortunate results. Further, an owner still needs to operate the business so that it remains attractive to a potential buyer. An owner should assemble a team of professionals who can guide them through the process. Experienced investment bankers, accountants, M&A attorneys and financial advisers help an owner navigate their transaction, work through issues, and mitigate risks, all of which can lead to a successful transaction closing.
Understand your personal situation.
Selling a business will likely result in the largest liquidity event of an owner’s life. After debts are satisfied and taxes are paid, the owner will need to live off the net proceeds for their remaining days. It is important to confirm there will be sufficient funds for an owner to maintain their lifestyle. If that will not be the case, an owner may need to adjust their plans to avoid an unwelcome situation after closing. It is also important for an owner to have a proper estate plan in place to account for the influx of funds and make use of tax planning strategies.
For more information or to seek counsel from our business & corporate law group, please reach out to request a consultation or call us at 216-696-1422.
