Many companies reach a point when selling the company is the best option to allow for continued long-term success, but, before making the leap, it's important to consider all the factors that go into receiving the best price and overall transaction.
Selling a business is a major transaction and, when done right, can be a lucrative opportunity for business owners. However, when done wrong, selling a company can end disastrously. It's important to prepare in advance to increase the likelihood of a successful sale.
In order to preserve confidentiality and business continuity, business owners should take these 10 steps before selling their company.
Step 1 – Prepare for due diligence
Due diligence is the process through which a buyer will thoroughly review all aspects of the company. A buyer will want information about the business’ contracts, agreements, leases, intellectual property, customer agreements, employee agreements, supplier and vendor contracts, employee benefits, tax issues, and other matters.
Many business owners assume that due diligence is a lengthy process, but they don’t have to be. Depending on the complexity of the business, due diligence can be completed within a matter of days. As long as a seller is ready to respond to a buyer’s due diligence requests, the process can be relatively painless.
Step 2 – Notify key personnel
Notify key personnel that a business sale is in the works. This can be a business’ shareholders, employees, vendors, customers, and independent contractors.
By informing them in advance, these key personnel can be prepared for possible changes. For example, if the business is sold, key personnel may be able to receive new employment offers (assuming the buyer intends to retain certain employees). Also, upon completion of a sale, key personnel may need to execute new agreements or supply certain information to the buyer, so it’s probably a good idea to start notifying them sooner rather than later.
Step 3 – Get business records in order
Companies should have all of their business records in order before a sale. This includes contracts, agreements, leases, tax returns, bank statements, and accounting records.
Most business owners have at least a general idea of where their records are kept, but it’s a good idea to have a detailed list of where every record is stored. For example, some records may be stored in a locked filing cabinet while others are kept in the cloud.
Additionally, many businesses also have complex data archiving systems in place in order to keep sensitive consumer data safe and secure in tamper-free archives. If a business is sold, the buyer may want access to these archives, so it’s important to keep them organized and ready for inspection.
Step 4 – Review corporate and LLC documents
A company’s corporate or LLC documents should be reviewed before a sale. This includes any operating or shareholder agreements, buy-sell agreements, or bylaws.
In the event a business is sold, these documents will govern the transition process. If these documents don’t adequately address the sale process, it may be necessary to update them to ensure the sale goes smoothly.
Step 5 – Get any required consents and approvals
Companies should obtain any consents and approvals that may be required in connection with a sale. This includes any agreements, consents, or approvals that may be required from third parties.
For example, if a business is sold, the buyer will need to obtain consent from employees, shareholders, customers, vendors, or landlords. The buyer may also need to obtain consent from government authorities or regulatory authorities. This is not something that can be overlooked – if consents or approvals can’t be obtained, the sale can’t be completed.
Step 6 – Coordinate with an accountant
Any sale is going to have tax and financial implications for the company, so it’s critical that a business keeps its tax information in order. Before a sale, companies should coordinate with an accountant to ensure all tax filings are up-to-date.
Additionally, upon completion of a sale, the buyer will need access to certain tax documents, so it’s necessary to keep them organized and ready for inspection.
Step 7 – Determine what assets are included in the sale
A business must determine what assets are included in the sale.
For example, if a company owns a building, that building can be included in the sale. If a company has valuable intellectual property, that intellectual property will also be included in the sale. If a company leases equipment, that equipment will be included in the sale as well.
Before a sale, companies should identify what assets will be included in the sale. This will ensure those assets are appropriately valued and that the proceeds of a sale are properly allocated.
Step 8 – Prepare a roadmap
To prepare for the sale, a company should prepare a roadmap. The roadmap should include any required consents and approvals, as well as a description of how the sale will be carried out.
This will help ensure a smooth transition. If a buyer knows exactly what needs to be accomplished, they won’t have to waste any time performing unnecessary tasks. The roadmap should be detailed and should cover all points required to prepare the company for the sale.
The roadmap also provides potential buyers with an overview of the company. If a buyer has any questions or wants additional information, the roadmap will provide a good starting point.
Step 9 – Solicit offers from prospective buyers
Once the business is ready to sell, the next step is to solicit offers from prospective buyers. To identify prospective buyers, there are generally two options:
- Obtain referrals from business contacts
- Advertise the business for sale
Once prospective buyers have been identified, the next step is to solicit offers from prospective buyers.
To solicit offers, a company may meet with prospective buyers in person, or they may provide potential buyers with confidential information, such as an asset list, a non-disclosure agreement, and a purchase agreement.
Step 10 – Review and negotiate offers
After offers have been solicited from prospective buyers, the next step is to review each offer and negotiate the terms of the sale.
It’s important to note that any offers received during a solicitation process are non-binding. However, once an offer has been accepted, the buyer will be bound by the terms of the offer.
The sale process can begin with the signing of a purchase and sale agreement, which outlines the terms and conditions under which the buyer will purchase the business.
Selling a business is a complex process that requires a lot of careful planning and preparation. This process will be far more seamless if companies take the appropriate steps in advance of a sale. This includes providing key personnel with notice of a sale, getting business records in order, reviewing corporate documents, obtaining any required consents and approvals, providing notice of a change in control, and preparing a roadmap.
The process of selling a business can be complicated, but it doesn’t have to be. By taking these ten steps before selling a company, business owners can streamline the process and ensure they receive the best price possible.