(by 4 people)
Selling your business is often the Deal of a Lifetime because unlike many other business decisions you have made over the years, you'll only do this once. You will likely come out way ahead, both financially and personally, if you make an effort to understand the steps in selling, formulate your plan carefully with the help of your professional advisors, and, when the time comes, take the time to negotiate a price and terms that satisfy your reasons for getting out of the business.
ASSEMBLE YOUR TEAM
Most Sellers rely on the expertise of others who have been through the business sale process before. The typical participants include an accountant, attorney and tax adviser (often the attorney or accountant doubles in the role of tax adviser). Other potential team members include a business valuation expert, investment banker or business broker.In determining whether to use a business broker or investment banker, understand that either will ordinarily ask for a contract with a 180 day or more exclusive right to sell the business. Business brokers charge a fee usually as a percent of the purchase price. Ten percent is typical. Investment bankers usually charge lower percentage fees since the transactions they work on are larger. In exchange, the intermediary often prepares a presentation package for prospective buyers and assists in other aspects of the sale process.
Engaging Advisers
- Working with Lawyers and Lawyering
- Information on how to work with lawyers and other professionals
- Guy Kawasaki on Deal Lawyers
- "Find one who views his role as a problem solver and service function for you, the customer."
PLAN FOR & COMMIT TO THE PROCESS
Timing is everything in the sale of business. Planning and commitment helps the wise business Seller avoid the big three common mistakes that can thwart a successful sale -- Impatience, Indecision and Indiscretion (telling others [e.g. suppliers, customers and employees] too early or too late).Intelligent business owners offer the business for sale as part of a carefully thought out plan pursued ideally over a three to five-year period. Potential buyers for the business are targeted in advance. The business is put on the market at its peak valuation in a time of prosperity.
Planning and commitment brings peace of mind. Without them, the business owner faces useless distraction and stress and potentially disastrous disruptions of normal business operations.
Business Sale Planning
- How to Find A Buyer for Your Business
- Now may be the time to sell your business. Both strategic and financial buyers are actively seeking acquisition targets and pricing is trending upward.
- Planning a Startup M&A Exit Strategy
- Ten commandments for startups planning or considering an merger or acquisition as an exit strategy.
- Business Plan Should Include Exit Strategy
- Each business exit plan should be custom made taking into account, business life-cycle, management needs, competitive environment
PERSONALIZE THE DECISION TO SELL
Answer to your satisfaction questions such as: Why do I want to sell the business? What will I do once I have sold the Company? Do I have a price in mind at which I would be willing to sell? How will my family and customers react to the sale of the Company? How do I feel about someone else running the business? What impact will new ownership have on my employees and the community it which it operates? Am I willing to offer a loan, take back paper or provide other financing to the new owner? Am I willing to continue in the employ of the new owner? On what terms? Position a Business for Sale
- On Being Bought Not Sold
- Your exit goal as a venture-backed company is to be bought not sold. Holding the top spot on several acquirers' target lists is the best way to achieve that
- Building to Be Bought? Invest in R&D
- Don't make long-term infrastructure investments in assets that an acquirer already has, instead invest in assets they don't have and need -- your product, IP, customers and market share
- When Should You Sell Your Tech Business?
- This post identifies two peak times for the sale of a software/technology business.
KNOW THE VALUE OF YOUR BUSINESS
Understand that what is being sold is a business opportunity. Potential buyers look at a business with an eye to the future. Sellers are often stuck on past performance. Equally important is for the Seller to have a realistic understanding of how valuable the business actually is. Dig in and thoroughly understand why someone would want to buy your business and what would increase the value of the business in the opinion of the buyer. Consider hiring a valuation expert. All of the foregoing should be undertaken with the aim of obtaining multiple, enthusiastic potential buyers for the business. Valuation Issues
- Proper Use of Multiples in Valuation
- Discounted cash flow valuations are the best way to assess the value of projects, but they are only as accurate as the forecasts behind them
- Valuing Technology
- A principle of technology valuation is that the optimum value of a technology transferred is a fair percentage of the cash flow generated by the competitive advantage of the technology
- How to Value a Patent
- 20 Steps for Pricing a Patent
DEMONSTRATE PROFIT POTENTIAL
Many privately held businesses are operated in a manner to minimize the owner's tax liability. Unfortunately, these same operating techniques can work to minimize the value of a business. Although it is possible to reconstruct financial statements to reflect a different method of business operation, this process may also put the owner in the position of having to pay additional taxes with regard to prior years. This is one reason why advance planning is valuable. A track record of three to five years of maximum profits is preferable to restating the financials. If undertaken, the recasting of financials should be undertaken with the objective of showing what the business would have achieved if run like a public company in which earnings and profits are maximized. Financials & Profits
- Capital Efficient Business Models
- A capital-efficicent model is one that allows a company to use as little cash as possible to generate significant growth and become self-sustaining and profitable.
- Financial Statements 101
- Knowing how to read financial statements is an essential skill
- Analyzing Financial Ratios
- Comparative ratio analysis helps you identify and quantify your company's strengths and weaknesses, evaluate its financial position,
Recommended Books on M&A
Applied Mergers and Acquisitions, with CD-ROM (Wiley Finance)
Amazon Price: $185.85 (as of 10/06/2008)
Mergers and Acquisitions from A to Z
Amazon Price: $23.10 (as of 10/06/2008)
The Complete Guide to Mergers and Acquisitions: Process Tools to Support M&A Integration at Every Level (JOSSEY-BASS BUSINESS & MANAGEMENT SERIES)
Amazon Price: $38.40 (as of 10/06/2008)
Mergers, Acquisitions, and Corporate Restructurings
Amazon Price: $47.25 (as of 10/06/2008)
Mergers And Acquisitions in a Nutshell (Nutshell Series)
Amazon Price: $25.20 (as of 10/06/2008)
REMOVE POTENTIAL DEAL OBSTACLES
The wise Seller puts herself in the shoes of the Buyer and properly prepares the business for sale, getting its house in order and handling potential problems in advance of sale. To the extent feasible, correct any weaknesses in the business, such as those due to existing or threatened litigation, contractual disputes, or other outstanding legal, tax, banking or financial issues that could slow down or prevent a deal from closing.Possible obstacles to handle in advance include perfecting the ownership and registration of patents, copyrights, trademarks and other intellectual property rights; obtaining any consents that will be required to complete a transaction; settling lawsuits and claims; and environmental cleanup responsibilities.
It is often imperative to have a detailed plan for dealing with employee morale. Employees can be upset by change even if the Buyer will offer better terms and conditions of employment. Diverting an employee's energies to the sales process can negatively affect normal operations. Steps that can be taken to combat this include "stay" bonuses, accelerated vesting of options and other benefits and other retention programs.
Issues, Problems & Pitfalls
- Issues in Tech M&A Deals
- By understanding the key factors that lead to a successful acquisition, TechCo and LargeCo can improve the probability of achieving one.
- Open Source Software M&A Risks
- Open source risks have become a significant diligence issue in many mergers and acquisitions.
- M&A Intellectual Property Issues
- Ten intellectual property Ingredients to a successful deal.
PREPARE FOR BUYER'S DUE DILIGENCE
Undertake a thorough review of the of the Company minute books, stock books and other corporate records and ensure that all are complete and up to date. Take any necessary corrective measures, such as adopting curative minutes. Similarly, make sure that all tax returns and other government filings, licenses and the like have been completed, filed and are current.Anticipate other items that will likely be requested for review by a Buyer and prepare a strategy and plan for confidentially providing same. Often a staged disclosure plan is prepared, revealing more sensitive information only after the sale process progresses. Review a typical due diligence request checklist to understand what will be needed. Gather the required information, take any advisable remedial action and be ready to respond to the Buyer's requests.
Books, Records & Information
- Beware of Buyers on Fishing Expeditions
- It is always nice to have a large company call you and express acquisition interest. That being said, go into the conversations with a skeptical eye
- Value of an Intellectual Property Audit
- The selling party should conduct due diligence on itself to make sure that its intellectual property is in order
- Acquisition Evaluation Checklist
- This Sample Acquisition Checklist is incredibly detailed and comprehensive and gives a good idea of the types of information a sophisticated buyer will seek.
- The M&A NonDisclosure Agreement
- A summary checklist and commentary concerning some of the more important items to consider when reviewing an NDA.
REQUEST & EVALUATE OFFERS
Sometimes a formal auction process is used to solicit offers, particularly if an investment banker has been engaged. In any event, the Seller ordinarily is called upon to evaluate the Buyer's offer often set forth in a letter of intent. The LOI serves to outline the agreement of the parties on fundamental issues and commits the parties to an exclusive period of negotiations.Price is the central bargaining issue in the transaction, but price cannot be understood without thinking about terms. Terms are often more important than price. It makes a big difference, for instance if a $10 million dollar offer is for stock or assets. The tax consequences for buyer and seller are significantly different depending on the choice. Better for the buyer because of a step up in basis, and worse for the Seller because of double taxation.
Similar considerations apply to liability issues and the timing and type of payments to be made. For instance, asset deals leave the seller exposed to liabilities that are not assumed by the buyer. Stock deals require the buyer to assume the liabilities of the business. Installment payments are worth less than the same amount paid at closing. Payment in stock of the buyer brings its own set of valuation issues.
Evaluate & Analyze
- Value vs Price in the Sale of a Business
- For many reasons, such as the relative bargaining positions of the parties and the skills of their negotiators, businesses are often purchased for more or less than their valuations.
- ESOP No Fable, but Viable Exit Stratgy
- Employee stock ownership plans, or ESOPs, have become a mainstream alternative for business owners who wish to sell their business but want it to remain largely intact
Recommended Books on Negotiation
Beyond Reason: Using Emotions as You Negotiate
Amazon Price: $4.99 (as of 10/06/2008)
Scripts for Winning Jobs: Job Search - Negotiations - Interviews - Promotions
Amazon Price: $19.99 (as of 10/06/2008)
Negotiate Your Way to Success (McGraw-Hill Professional Education)
Amazon Price: $7.95 (as of 10/06/2008)
Negotiate Smart: The Secrets of Successful Negotiation
Amazon Price: $13.64 (as of 10/06/2008)
What not to negotiate. (lease negotiations in the 1990s): An article from: Journal of Property Management
Amazon Price: $5.95 (as of 10/06/2008)
NEGOTIATE DEFINITIVE DOCUMENTATION
The Purchase and Sale Agreement can be a complex document. The major bargaining issues include: price; structure; seller's representations and warranties; the conduct of the parties pending the closing; and conditions to the closing. In a sense, the entire negotiation process involves the apportionment of liabilities between buyer and seller.This process often is crystallized in a hotly contested negotiation of the agreement's indemnity provisions. The parties must agree on who is to bear the risk of post-closing liabilities, both those that have been disclosed and those which are contingent or unknown. The seller wants to sleep at night. The buyer counters that the buyer is paying good money for a business that exists as the Seller has described. The buyer wants protection if the business turns out not to be as advertised. Resolution usually involves agreement on time limits for making claims and limits on the seller's exposure for certain types of liabilities.
Getting to Yes
- Negotiation Tips from the Trenches
- By following a number of rules, virtually everyone can fine-tune their skills at negotiating deals in which everyone wins.
- Best Alternative to a Negotiated Agreement (BATNA) Explained
- BATNAs are critical to negotiation because you cannot make a wise decision about whether to accept a negotiated agreement unless you know what your alternatives ar
- Making Your Threats Credible
- Your threat will be credible only if the other side believes it's in your best interest to follow through
CLOSE THE DEAL
Typical closing conditions that must be satisfied include: the Buyer obtaining financing; completion of the Buyer's due diligence investigation; receiving required opinions, approvals and consents; entry into ancillary contracts; and the absence of certain events such as threatening litigation. Seller and Buyer cooperate to satisfy the closing conditions in advance of an agreed upon closing date.When the conditions are satisfied and closing date arrives, the parties and their representatives assemble and lay out the paperwork. In neat piles on tables are found bills of sale, required consents, officer's certificates, opinions of counsel, and other transfer memorabilia. After dealing with the inevitable last minute snafus, documents are signed, wire transfers are completed and the business changes hands.
Gap Closers & Closing Issues
- Consider R&W Insurance
- Representation and warranties insurance has emerged for use in M&A transactions as a means to prevent deals from falling apart
- Benefits Issues Can Delay Closing
- There are numerous employee benefits matters that can require time to resolve and delay closings, such as union employees and union contracts,
- How To Survive An Earnout
- The key to a successful earnout lies in negotiating smart, achievable targets, making sure they're spelled out clearly in your contract, and keeping some power over decisions that directly affect them.
- Closing Agenda Checklist
- Recommended best practices for managing the preparation, execution and delivery of the many documents required to close an acquisition.
