For most entrepreneurs and business owners, selling the company they’ve built and run is a once-in-a-lifetime experience. And a difficult one: the stakes are high, the decisions are unfamiliar, and the transaction itself can be quite complex.
To start off right, ask yourself these five questions as you consider the sale of your business:
1.What am I trying to achieve?
“A key first step in any exit planning is to figure out what you want out of the deal up front. Sometimes this is simple. Sell the company, collect your purchase price, plan the trip around the world that you have always dreamt of taking and leave it to the purchaser to take over. Sometimes, though, there is more to selling your company than just turning over the keys to the plant in exchange for an agreed-upon purchase price.” (On Your Marks, Get Set… And Get Set Some More: Preparing a Private Company For Sale by Garth Stevens)
2.What exactly am I selling?
“The Sale Contract should encompass and enumerate all the properties or assets as part of the sale price being transferred and those NOT being transferred… In addition, the Sale Contract should not only enumerate the assets being sold and transferred as part of the sale, but also enumerate the condition of each asset to further eschew problems down the road.” (Fundamentals of Contract for Sale of Business by Doron Eghbali)
3.What’s my company worth?
“The first step in any valuation is to analyze the business, its assets, history and market. Of course, a valuation is only as good as the information about the business. So, it’s critical to ensure all of your information is accurate and complete. Central to this analysis is financial information… Yet, often financial information must be legitimately “recast” to reduce the effects of tax decisions and owner benefits, and to be able to compare the results against other similar businesses.” (Technical Methods of Business Valuation by Ed Alexander)
4.Are my financial records in order?
“Providing a prospective buyer with accurate and complete financial statements is a prerequisite for any sale. While some buyers will accept unaudited financial statements, depending on the size of the transaction, most buyers will require audited financial statements for at least the last completed fiscal year prior to the closing of the sale. An audit, especially a first-time audit, of a company’s financial statements can take months to complete even if there are no surprises.” (What You Need to Get Done Now If You Want to Sell Your Company in 2012 by Mintz Levin)
5.What agreements, contracts, leases, etc. does the buyer need to know about?
“The existence of confidentiality, non-disclosure and non-compete agreements are not only important considerations for a potential buyer, but are critical to the protection of the operating business… Real property and equipment leases typically contain provisions restricting or prohibiting transfer or assignment absent the consent of the landlord or lessor… If the business depends on any key agreements with third parties (e.g. distributorship, license, franchise, sales representation, furnishing of a third party’s requirements), make sure these agreements are in writing and protect against unreasonable termination.” (Ten Planning Issues to Prepare a Business for Sale by Ronald Adams)
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