There comes a time in every business owner’s life when he or she decides it’s time to sell the company. The reasons are as varied as the outcomes. The business sale process for each has a similar cadence, and it entails a combination of goal setting, preparation and proper execution. Having guided more than 40 companies through the transaction process, Boyne Capital has developed a checklist of things you must do to assure a smooth and successful sale. Here are Boyne’s Top Five Tips:
- Know Thyself: Understand your reasons for selling and what you want from the deal
Why are you selling? Are you retiring and looking to fund your post-work life? Perhaps you’ve taken the business as far as you are willing and would like to cash out to finance a new business venture or chapter in life. Or maybe you are looking to sell a sizeable stake in the business to a financial partner who can help expand the business. We often work with owners who realize selling can be the way to provide the “next one” with the opportunity to buy in. Make sure you clearly understand your reason for selling and the impact that it will have on the ultimate sale price and the deal structure.
- Get Your House in Order
In real estate the mantra is “Location, Location, Location,” and in the sale of a business it should be “Housekeeping, Housekeeping, Housekeeping.”
- Establish clear ownership and value of Intellectual Property (patents, designs, proprietary processes, etc.). They are assets unique to your company.
- Address any outstanding stock issues. Are there options promised to key employees, stock grants to family members, warrants to debtholders? You will need to present a clear, clean ownership statement to prospective buyers.
- Purge obsolete materials and inventory; they are of no use and little value.
- Get your receivables in order; reel in those long-overdue payments
- Make sure all contracts and agreements are up to date.
- Understand Your Business’s True Value
The company’s sales contracts, market position, tools and technology (their age and state of depreciation), product development pipeline, distribution channels and partners, key employee agreements, physical holdings, patent portfolio, sell-able inventory, cash reserves and other factors all contribute to the value of a business. Need help? Call Boyne Capital. In over 20 years in mergers and acquisition funding, the principals of Boyne Capital have assembled a cadre of top–notch professionals who have helped our portfolio companies successfully navigate the choppy waters of a business sale.
- Get Your Documents in Order
You will need to back up everything with proper documentation. So begin early by gathering copies of all customer contracts, vendor agreements, employment contracts, building and equipment leases, debt obligations, marketing plans, sales forecasts, commission schedules and such. On the financial side you will want to present complete P&L sheets, assets and liabilities statements and 3-5 years tax returns.
In the sale of a business, transparency is key. Hiding negative factors will only come back to haunt the seller. Corporate law annals are replete with cases of buyers suing post-sale to recover funds based on misrepresentation of assets, the validity of contracts or other value-limiting factors. A smart buyer will kick the tires and look under the hood to be sure they’re not getting a clunker.
- Develop a Personal, Post-Sale Plan
What is your personal goal in all of this? Will you just walk away from the company you built? Keep a management role? Do you want a board seat? Will you take a gap year? Start a new venture? Consider the tax implications of your sale… will you take all cash? Stock? A Note? Knowing what your next chapter will be is vitally important in structuring the terms of the deal. And it is imperative that you have an investment strategy in place to protect the proceeds from the sale.
That’s it. For a smoother sale process, follow these fundamental rules:
- Understand why you’re selling, what you want from the deal and what you’ll do post sale.
- Prepare your business as you would your house, get it operating and looking its best.
- Clear up any ownership issues.
- Put your business and financial documents in order.
- Call Boyne Capital to help get you the value you deserve from the business you’ve built.
Then enjoy the next chapter… you’ve earned it.
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