Negotiating and Managing the Sale of Your Business
As a business owner, you have probably been negotiating different facets of your business for years. However, that may not have prepared you for the rigors of negotiating and managing the sale of your business. The process has many challenges and a misstep can result in an unfavorable outcome.
Hiring a Qualified Transaction Advisor
Hiring a qualified advisor is important and should be considered at the beginning of your journey. It is best talk with people in your specific industry who recently sold their business – their memories will be fresher, and they can speak to current market conditions. Find out if they used an outside advisor, and if not, would they hire one if they could start over again.
Securing maximum “value” for your company requires the right combination of industry knowledge, process experience, financial acumen, established marketing skills and tough but fair negotiating abilities. Transaction planning, business valuation, due diligence, and deal negotiation are part of the steps you need to consider when approaching any transaction.
6 Steps in a Business Sale Transaction
While no two deals are alike, there are six basic steps in the overall transaction process. Each has its challenges (and opportunities) and each step can result in significant financial swings, often times a six-figure amount. Here is an overview of the steps and how the right advisors can add value.
A successful outcome begins with your advisor doing their homework and setting the right expectations. Getting to know your company, the financials, and your story are important An experienced advisor will know the questions a potential buyer will ask. By the end of this stage, a good advisor should provide a market-based valuation range, ideas on potential strategic and financial buyers along with insights on how the market will perceive the business – it’s selling strengths and challenges. Find out how Keiter can assist with your valuation service needs.
A transaction advisor will prepare materials to assist a potential owner’s evaluation of the business, including:
A cohesive deal process and detailed timeline
A marketing document (also called a confidential information memorandum or “CIM”) The CIM presents the business like a good book, guiding the buyer through the relevant quantitative and qualitative information while telling a It includes financial data in a way qualified buyers readily understand and can process.
A comprehensive buyers list containing purchasers that have expressed an interest in this segment – both industry buyers and financial/ private equity buyers.
Additional information that allows a buyer to forecast synergies they could secure from the business
A transaction advisor will ensure pre-approved buyers have signed a “blind” (no name) confidentiality agreement, provide them the marketing material, and work to move each one to submit an offer. This is where an advisor can add considerable value as it is a very time-consuming phase. A good transaction advisor will handle relevant follow-up questions and negotiate aggressively on offers received.
Once an LOI is signed, every buyer will begin what is referred to as a “deep dive” diligence process. Some will hire a third party (usually an accounting firm) to conduct a quality of earnings (“Q of E”) review. The Q of E is designed to ensure that all financial representations, and many operational ones, are as advertised. Sellers beware; some buyers use the information gained in the Q of E to chip away at the original offer. This phase is critical, and the right advisor will leverage their experience to help you successfully manage the process. Find out how Keiter can assist with the due diligence process.
Business sale deals can “die” several times over the course of the transaction. The parties disagree, emotions get in the way and one party pushes back from the table. A talented advisor can get things back on track and get the deal closed.
A typical transaction will have 5- 7 agreements, each of which has a myriad of points to resolve. In addition to helping secure the best terms possible, a business transaction advisor can act as a “buffer” between the parties- providing a voice of reason when things become contentious.
But make no mistake, it also takes a qualified attorney to manage the legal process. However, an advisor with experience in your industry can provide direction using strategies learned from similar industry deals.
This aspect of a transaction does not always get the attention it deserves. How the event is communicated to employees (of both organizations), customers, vendors and the respective communities is critical. A quality transaction advisor will assist the seller and buyer to help make sure they have prepared communications and plans in place to effectively address employee questions and concerns.
Selling your business is likely a once in a lifetime decision – so you want to get it right the first time. Choosing an experienced advisor will help you stay focused on managing the business day to day and achieve a more favorable outcome for all of those involved.
Meet Matt Austin and learn how the transaction advisory services team at Keiter offers additional insights for their clients.
If you are considering a business sale and would like to learn more about the process, please contact us. We are here to help.
Plan and execute transition strategies, including family buy out initiatives and third-party sale
Examine the profitability of their business and develop viable improvement programs
Renegotiate existing financing arrangements and secure new lenders
Most importantly, Keiter Advisors is backed by a Top 200 CPA Firm with transaction structuring, tax planning, due diligence, and valuation experts at Keiter CPAs. This collaboration results in a transaction advisory team that has the experience and track record needed for privately-held businesses.