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M&A Representation

Things to Consider as you Prepare to Sell Your Business

The sale of a business can take months, if not years, representing the culmination of all the money, time and effort invested into your business. Despite this simple truth, time and again business owners approach the sale process without a clear plan and without considering the implications of this momentous event. By adopting a proactive and carefully considered methodology, business owners can increase profitability while decreasing the accompanying risk, liability and stress.

Preparing the business for sale

Business owners should define the process of selling their business not as starting with a purchase and sale contract with the potential buyer, but as a process that can take 6 months to 2 years to accomplish properly. First a seller must take stock of the business, consider weaknesses, address issues with revenues and cash flow, and then consider what steps can be implemented to make the business more appealing to a buyer. This will include cleaning up and streamlining accounting and recordkeeping, improving revenues as needed to get to the desired sale price, addressing issues with the corporate structure of the business, and building and retaining a management team and work force to improve efficiency and efficacy of the business. Preparing the business for sale involves taking a long and objective look at the business, evaluating it from the perspective of an interested third party, and doing what can be done to present the best possible package to such a third party.

Putting the team together.

Many entrepreneurs and business owners are DIYers. But as I would not try to re-wire my house, nor should the business owner try to navigate the murky waters of a business sale without proper assistance from experienced professionals. A business sale has long-term legal, financial and tax implications for the seller. If the contract is not properly drafted, a seller can face post-closing liability. If the sale price does not properly account for retirement planning, a shortfall may occur. If a c-corp owner does not consider tax implications, the purchase price could be consumed by taxes. While there will be no shortage of advisors willing to offer their services (for a fee), a wise business owner will consider which will be most needed during this process. At the very least, the seller should retain the services of an attorney skilled in mergers and acquisitions (and not your general practice attorney or family friend that does estate planning), a CPA and financial planner. Consider also the services of a business broker or sales consultant.

Goal, Tax and Financial Planning

As discussed above, there can be serious financial and tax issues if the deal does not include proper planning. Take the time, early on in the process, to discuss goal planning with your advisors. Consult your CPA and attorney on tax issues. Using the c-corporation example from above, you may have some restructuring, contract planning or other preparations to implement to reduce tax exposure. And your sale price should take into account your post-sale goals. If you plan to retire after the sale, your financial planner will need to be able to factor the take-home sale price into your financial plan. Conduct your goal planning and consult your advisors to make sure your goals are within reach considering the practical aspects of a potential sale.

Protect Yourself as You Vet Buyers

Once you’ve found a potential buyer, they will want to get as much information as they can about your business. This will likely be a necessity, as no buyer is likely to purchase a business without having done the proper due diligence first. But make sure that a prospective buyer signs a properly drafted non-disclosure agreement before you go handing over any information or documentation.

 

LEGAL DISCLAIMER

The information herein is not legal advice and does not create an attorney/client relationship. The information is in the form of legal education and is intended to provide general information about the matter.  The above is not, nor is it intended to be, legal advice.  Consult your attorney with questions.

1 Comment

  1. What are Mergers and Acquisitions? | Totman Law on January 9, 2018 at 5:14 pm

    […] is broad and encompasses a myriad of transactions and deal structures, including private sales to outside purchasers (e.g. new owner/operator or equity group), internal transitions to key employees or shareholders, […]

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