You’ve finally decided to sell your business. Whether this is an emotional decision after years of debate, an easy choice that you hope will be profitable, or a bridge to retirement, now the real work begins. Preparing your business for a sale is the most significant factor in the success of the sale. It can take years to get ready for a sale, and your preparation can pay off in the form of a more lucrative sale with more favorable terms than you otherwise could have expected.
Here are 10 tips for getting the most value and the least stress out of your business sale.
- Know the value of everything, including equipment, fixtures, and machinery. Many buyers intend to use this equipment for collateral. No one wants to learn at the last moment that the machinery isn’t sufficiently valuable to support the debt the sale demands.
- Resolve all litigation, regulatory, and similar issues before putting the company on the market. Outstanding liabilities can sap a sale’s value.
- Be flexible about any real estate. Most buyers want the business, not necessarily the real estate associated with it. You may need to break the sale into component parts to get the greatest value, especially if the buyer sees the real estate as an inconvenient liability.
- Understand that lack of quality management, regional instead of national distribution, few clients, few products, unclear books, and other liabilities can lead to lower valuation multiples.
- If a buyer intends to sign a letter of intent or term sheet, you should negotiate upfront what must be included in this document. Some common inclusions include: terms and price; assets and liabilities involved in the purchase; whether any real estate will be purchased or leased; which contracts will be assumed, the schedule for due diligence, and how employee issues will be managed.
- Non-negotiable items must be discussed early in the negotiation process to prevent the deal from breaking down.
- Know that the successful sale of a company involves three competing objectives: confidentiality, speed, and value. You’ll generally need to prioritize just two.
- A study of more than 300 private U.S. companies that sold or transferred points to several specific actions sellers can take to boost sales prospects: improve profitability; reduce costs; limit owner compensation; fully fund the company pension plan; restructure debt; strengthen the management team; use a consultant; upgrade computer systems.
- Determine who has the legal authority to sell the business. This process may require the consent of the board, a majority stockholder, creditors with liens on the business, and other entities. It’s important also to ensure the legal structure of the business, including its corporate entity, is up to date and consistent across all contracts and other documents.
- Recruit the help of professionals. You’re an expert in running your business; you’re not an expert in selling it. Don’t learn as you go, or you’ll lose money. Hire a professional intermediary, since doing so can add real value to the sale.