By: Mark T. Jensen
If you own a privately-held company, you probably have considered what you might do when it comes time to retire, or you are no longer able or interested in continuing to work as hard as you have to build your business. Chances are, your business represents a significant percentage of your personal net worth. One of your options is to sell your business. Here are five tips to consider when thinking about selling your business.
Planning for the sale of a business should start at least three years before you plan to actually take your business to market. One of the first things a potential buyer will ask for is the past three years of tax returns and financial statements. If you use an investment banker or a broker, they will also want to see the past three years of tax returns and financial statements to help build a book to take to market. You will want to make sure the tax returns and financial statements you provide present your company in the best light possible and support your sales narrative. You will need a team of seasoned professionals that know each other and work together well and this can take time to assemble.
It will take more time than you may expect to conduct your own internal due diligence and to address issues that you will likely uncover. Coordinating the terms and end dates of key contracts takes time. Developing and deploying strategies to assure the cooperation of key employees and minority shareholders also takes longer than is often anticipated.
Selling a business is a full-time job involving you and your senior leadership team and you will be expected to do this job while also running your business. You will have two full-time jobs at once: one you know well and one you are new to, and the stakes will be high. Planning ahead helps to lower the pressure, lower the risk, eliminate surprises, and increase the likelihood of a positive outcome and a manageable experience.
Build a Team
A buyer in the sales process will have a professional team: lawyers, investment bankers, C.P.A.s, valuation experts and finance people. They will all be focused on you and make demands on you for information and decisions in a compressed time frame. The documents and spreadsheets will be circulating at a fast pace. Deadlines will be imposed on you and pressure will build.
A seasoned team of experienced professionals who are working together with a solid understanding and respect for each other’s roles in the process is essential for successfully navigating this process. At a minimum, you will need an attorney, a C.P.A., a tax professional, and an investment banker or broker, each experienced in mergers and acquisitions work. They should know each other and have a demonstrated ability to cooperate and work together.
You will also need a strong internal team to pull together the financial, client, H.R. and other materials requested in due diligence. They will need to be people you want to know about the deal before you are ready to announce it publicly, and they will need to be able to do the extra work on top of their regular full-time jobs.
Start Building Out Your Data Room
Your team of professional mergers and acquisitions folks should be able to provide you with a draft spreadsheet of typical due diligence requests for documents and information in transactions like the one you are contemplating. You can expect this spreadsheet to run five to ten pages and over one hundred lines. They can also help you set up and use a cloud-based data room.
It is a very useful exercise to start going through the checklist and building out your data room with documents and information normally requested in mergers and acquisitions transactions. This exercise will give you a feel for the upcoming demands of due diligence, give you a head start on this detailed and time-consuming process, and start to highlight areas where you will need to do additional research or work to get your business in shape to sell. It will also give you a psychological advantage when you take your company to market: a crisp data room properly populated will inspire confidence in potential buyers, making the process more efficient, easier (not easy) and help to support your valuation.
Part two of this article will feature the remaining tips for selling your business. Be sure to check back for updates, and follow us on LinkedIn for news and legal tips from the attorneys at Bowie & Jensen.
For more information, contact Mark T. Jensen at Jensen@bowie-jensen.com or (410) 583-2400.