Planning for a Successful Exit from Your Business

One of the hardest decisions for a business owner is what to do with the business when you decide to retire. You will often perform a SWOT analysis of your business to determine your company’s strengths, weaknesses, opportunities, and threats. You will look at any children or other key management personnel to assess their abilities to run and operate the business. You will also review the possible tax implications of any sale or succession plan. All of these assessments should be done carefully to honestly determine the best path for you and the business.

So, you have made all of these assessments and decided to sell the business to a third party. Now what do you do? Like most things, advance planning is important to meet your goals and sell the business at the highest possible price in the shortest amount of time to a preferred buyer.

You need to establish your team as early as possible. Talk to your attorney and accountant to make sure they have the necessary experience in selling businesses. Selling a business will be the biggest and most complex transaction of your life. Experience matters a great deal. You need an attorney and accountant that can prepare and advise you through this difficult process. The corporate group at Stark & Knoll has extensive experience in selling businesses in a wide range of industries.

Your attorney and accountant can help determine whether you need to retain the services of a business broker or investment banker. These individuals can help to develop a market for the business, identify potential buyers, and negotiate the basic terms of the letter of intent or term sheet. In some circumstances, the right broker or banker can bring valuable experience in the industry with a deep network of connections and can truly enhance a deal. However, at other times, the transaction size may not be large enough for a banker to be interested or the market of potential buyers may be so small where the value of such banker is limited. The merger and acquisition attorneys at Stark & Knoll can help determine if a broker or banker is necessary and narrow the field to those who will truly bring value to a transaction.

It is vital to the process that each member of your team is on the same page. Often, the most trusted advisor to the business owner will lead the team, facilitate communications between each member, and define each person’s role in the transaction. Expectations need to be set early and be clearly communicated and discussed between each team member. Realistic time schedules need to be determined and each member of the team needs to perform their jobs, while respecting the work of the others.

Once you have your team in place, you need to prepare to “show” your company to potential buyers. Since the purchase price is commonly based on the financial performance of your company, you and your advisors need to develop and implement a plan to improve your financial statements by accelerating or increasing revenues, reducing expenses, and making other changes to your operations to maximize profitability. This will help maximize the expected sale price of your business.

You will also need to prepare to answer the due diligence questions of the buyer. Are your minute books up to date? Are your key contracts in good shape? Do you have necessary confidentiality and non-competition agreements with key employees, contractors, and sales agents? Is your intellectual property protected? You will need to work with your attorney to prepare any missing documents, as holes in a due diligence investigation can reduce a purchase price and even kill a potential deal.

You further need to plan on how you will fulfill any due diligence requests. The sale of your business is always a very confidential process. Business owners don’t want key suppliers, customers or employees to know about the transaction until it is certain to close. However, due diligence is obviously conducted well before a transaction closes and is a time-consuming process requiring significant commitments from key personnel. Who at your company will help you in this process? Identifying these individuals is important for not only collecting due diligence information, but also for other assistance needed throughout the sale process.

Every sales process unfolds differently. However, engaging the right advisors early in the process is important. Well-executed strategies often improve the outcome of the final transaction.

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