It’s Time to Sell Your Business: Here’s What to Expect
So, the time has finally come. You have spent years of your life building up a fantastic business, attracting valuable customers, and building a great team to manage all aspects of operations, but now believe the time has come to finally pass on the torch to another entrepreneur willing to put in the effort to expand upon what you have established thus far. However, while you might have been right at home in building something from the greyhound up, selling your creation is another thing entirely.
This post will go over the many moving parts of selling a business so that you can proceed with confidence and knowledge and make the most out of your years of blood, sweat, and tears.
Find A Business Broker To Facilitate The Deal
There are several compelling reasons why a business owner may opt to use a broker to facilitate the sale of their company. A skilled broker understands the market can help maximise the sale price and that typically has extensive networks and experience marketing businesses to potential buyers. This increases the likelihood of attracting suitable purchasers and competitive bids. Moreover, as you can see with the listing from HedgeStone, one such qualified broker, they are also able to facilitate sales with higher multiples than if you were to go alone. Rather than the owner spending considerable time on these crucial sale tasks, a broker allows the owner to stay focused on running the business until the deal closes.
Brokers are also well-versed in all stages of the sale process, from preparing financial documents and marketing materials to negotiating the terms of the agreement. Their expertise shortens the time to sell and increases the probability of a smooth transaction. By leveraging the broker’s market knowledge and industry contacts, owners can achieve a fair price and ensure a seamless transition, freeing them to pursue new opportunities.
Prepare For The Sale Process
There are important preparations an owner must make to ensure a business is well-positioned for a sale and the process goes smoothly. Firstly, the company’s financial records should be meticulously organised and audited so they paint an accurate picture of historical performance and future potential.
All legal and tax documents also need to be in order to address buyer due diligence (more on those later). Next, a confidential information memorandum should be created with an in-depth company overview, industry analysis, financial statements, and strategic growth plans. This marketing collateral will attract qualified buyers and communicate the value proposition. The owner must also evaluate and strengthen key customer relationships and supplier contracts so buyers see a stable revenue base.
Simultaneously, the owner should work closely with retained advisers, such as those mentioned in the previous step, to establish realistic valuation expectations and determine what non-core assets may be divested to improve the bottom line. With the business and sale process optimised in this manner through careful planning, owners can feel confident they have created an ideal environment to find a suitable long-term steward for their company.
Perform Your Due Diligence Process
It is imperative for prospective buyers and sellers of a private business to conduct thorough due diligence investigations before finalising any acquisition agreement. The due diligence process exists to surface any issues, liabilities, or risks that could impact the viability of the transaction or business operations going forward. Requesting and carefully analysing essential documentation provides insight into the accuracy of information presented and the health of customer relationships, contracts, and financial systems.
Meeting with key personnel gives buyers insight beyond documents to assess corporate culture, management capabilities, and potential weaknesses. You may need to hire third-party specialists to appraise inventory, equipment, facilities, and intangible assets to establish fair market value. Potential deal breakers such as environmental risks, legal claims, or structural defects must be uncovered. With diligence, valuation adjustments or warranty items can be negotiated to account for issues identified. Buyers can make fully informed acquisition decisions with open eyes and mitigate post-purchase surprises by taking the necessary time for a well-executed due diligence review.
Final Legal Considerations And Documentation
There are important legal considerations and documentation necessary to structure a private company sale transaction properly and mitigate risks for all parties involved. The initial letter of intent or memorandum of understanding will outline essential deal points and terms to facilitate further negotiations while also protecting either side from litigation should talks fail. However, the primary document finalising the acquisition is the purchase agreement, which must be very carefully drafted by experienced legal counsel. This comprehensive contract will detail representations and warranties made regarding ownership of assets, financial conditions, legal compliance, and other crucial matters. It will also specify (among various other things):
- Purchase price terms
- Any holdbacks
- Escrow accounts
- Indemnification clauses put in place should issues surface post-closing
Ancillary agreements transferring ownership of intellectual property, real estate, licenses, and various other company assets must likewise be professionally prepared and executed to ensure a smooth transition of ownership. Legal review is further needed to comply with regulatory requirements around matters such as obtaining licenses or filing changes in corporate status with government agencies.
Selling a business is an incredibly exciting process, but one that involves far more than simply handing over the keys. In order to conduct a successful sale, it is usually advised to hire outside specialists who can create a win-win situation for all parties concerned.
Time to Sell Your Business – Other useful links from our Knowledge Centre:
How to Manage Business Finances Correctly and Efficiently
Unlocking Business Potential: Strategies for Long-term Success
The Impact of Sustainability on Ecommerce Businesses
Remember to Compare Your Business Costs is here to help your business every step of the way from business advice, or saving you time and money on your business purchases such as: