If you’ve built a successful company, you probably know how to grow a business, but do you know how to get the best price when you sell it? I’ve built and sold multiple businesses in my 30+ year career. In those first sales, I learned from my mistakes. And after a few hard knocks, I now know there’s a better way. Hiring a team of experts to help with a sale can maximize your exit and protect you from risks.
Invest in Consultants and Experts
Most of us don’t sell companies very often, so very few entrepreneurs are experts at selling firms. That’s why professional expertise can pay for itself in spades. Kick off the process by hiring an experienced business valuation expert. They will assess the firm to determine the fair market value. This valuation gives the owner an idea of how much the enterprise is worth “as is” and should also provide pointers to improvements that will increase the size of future offers.
Retaining the services of an outside accounting firm is helpful when preparing books for scrutiny. Legal teams and accounting firms examine your financial records during a sale. In this process, the financials are held to a very high standard; even minor errors or omissions can cause big problems. A reputable accounting firm with experience in business mergers, sales, and acquisitions, can help your internal accounting team compile financial statements and documentation in sale-friendly formats. Accounting consultants will help the team create, modify, or clarify income statements and balance sheets, catch errors, and ensure financial records and documents are above reproach.
Corporate law attorneys specializing in sales and acquisitions can handle legal or regulatory situations that may affect a potential sale. In addition, those same lawyers should be on hand to review contracts and agreements, such as leases and vendor contracts, to ensure they are transferable to a new owner.
Which Type of Sale is Right for Your Firm?
A business consultant can help determine which type of sale offers the most opportunity. In every kind of sale, it’s wise to enlist the help of a business consultant who understands sales and acquisitions and an attorney specializing in corporate law. We’ve listed the most common sale structures here.
Private Equity Firm
These buyers usually have the financial resources and expertise to grow a business. However, a private equity firm may have a short-term investment horizon, which means they are focused on maximizing their return on investment rather than maintaining the long-term viability of a company.
ESOP
An employee stock ownership plan (ESOP) enables employees to purchase shares in the company over time. Employee ownership rewards staff members and ensures that the firm is run by people who are invested in its success.
An employee ownership consultant may be required because the Employee Retirement Income Security Act (ERISA) of the Department of Labor and the IRS’s Internal Revenue Code section 404(a)(3) govern ESOPs, so deviations from the prescribed process, intentional or accidental, break federal laws.
Succession
While it may seem simple to pass on the family business, it’s important to formalize the process to address legal considerations and prevent anyone from contesting ownership. The transfer should be formally documented and detail valuation, taxes, and ownership structure.
Individual Sale
If an individual wants to buy the business, the process should start with a letter of intent (LOI) outlining the proposed terms for sale. Owners should also qualify individual buyers before moving forward by conducting background checks.
Selling to a Competitor
Your business may have the most value to your competitors. These types of sales usually require the seller to agree to non-compete clauses, which may limit their ability to run businesses in the future.
Invest in Experts
It’s easy to view consultant fees as an expense, but when it comes to selling a business, their role is to minimize risk and maximize the asking price. Good consultants are not cheap, but their recommendations can protect owners from legal and financial risks. A consultant’s recommended improvements to the business can add millions to the asking price. And accountants’ contribution to bookkeeping can prevent costly delays or dropouts. When you look at the bigger picture, you can’t afford to keep them out of the process.
