What to Do Before You Sell Your Business - The Presale
1. Fix Unresolved Issues
Before selling your business, make sure there are no major, unresolved issues.
Disputes with fellow owners, tax audits or other governmental investigations can be of issue. Be aware of anything that relates to equity in the company, litigation and potential environmental issues.
These problems tend to slow down a transaction significantly, and buyers are risk averse by nature. In addition, if an M&A advisor decides that the merger or acquisition will be a prohibitive amount of time and effort then they may decide that it’s, “more trouble than it’s worth.”
2. Clean Company Documents
Legal documents must be ready for review by outside parties. Just because your documentation looks familiar within your company, it can appear foreign to outside appraisers. Here’s some documentation you should keep in mind:
- Options plans
- Board notes
- Employment paperwork
- Partnership agreements
It’s important to retain the services of an outside party to prepare your business for an M&A transaction. Lack of adequate pre-negotiation preparation is a handicap, which can derail the M&A later on.
3. Spruce Up Your Balance Sheet
This may be painstaking, but it’s the easiest thing you can do to help your business through the M&A process. Messy balance sheets have been known to kill deals.
4. Systematize Business Processes
Systematizing and automating processes will make your business look like a more attractive target. The less human capital required to maintain your company, the better.
Where you can, make systems and protocols for managing deal flow and products. By doing this, you’ll not only look like a better prospect; you’ll also help your business make even more money before the sale goes through.
5. Focus on Value Drivers
Financial performance, growth potential, recurring revenue are characteristics that potential buyers will find great value in.
Make a plan to boost these characteristics, and your buyers will become even more interested than before.
6. Cut Costs and Eliminate Debt
This is stuff you’ve been doing while operating your business, it just becomes more important when you’re trying to sell.
By reducing costs, you improve margins and by eliminating debt, the buyer has less to worry about. In other words, increase your upsides and decrease your downsides to have the best return on your business. Don’t cut costs you need to maintain and grow the business. Buyers will see through that and if it takes a while for you to close a deal, you’ll negatively affect your business’ performance. However, in every company, there are expenses that are more “nice to have” than essential.
7. Retain and Cross Train Employees
A big reason why your company will be valuable to buyers is human capital. Your team has worked hard to build your company, and many will stay once you part ways.
The buyer has a huge incentive to find companies with successful teams, so hire well and retain good management and employees. It would be an ideal time to promote people into leadership positions.
It would also be wise to cross-train people in different departments or specialties, because sometimes with an acquisition comes layoffs. You want to make sure your company continues to run smoothly after these layoffs.
Selling your business can be painstaking. Having the right professionals on your side of the deal can make it a lot easier. Call us at 512.910.2700 or click here to learn more.
Talk to management, because buyers will want to talk to management. They will want to know whether they are willing to stay on with the buyer after closing, or even if the buyer doesn’t want to employ any of your company’s management, they will have questions about issues to which only specific management members can answer.
Buyers might also want to talk to your legal counsel and Chief Financial Officer. If your company is in the middle of a lawsuit, the buyer is going to want to speak to your legal counsel. If your company has highly varying accounts receivable and payable, buyers will want to talk to your Chief Financial Officer.
8. Address Minority Issues
You can also try to purchase and consolidate available minority shareholder interests. You can buy some minority interests and keep good ongoing shareholder relations to make it easier to get shareholders to act when necessary. Additionally, for asset deals, shareholder approval isn’t required.
9. Connect with a Business Broker or Investment Banker
Even if your company is a main street business (less than $2 million) or in the lower middle market, there are business brokers who can help prepare your company for sale. Contact them sooner- get a head start on selling your business.
Explore the steps you can take early in the process. Think years out from the date you want to sell or just begin exploring the market.
Now that you’re done with the pre-sale process, it’s time to begin focusing on the foundation for the sale itself. Check out our next article What To Do Before You Sell Your Business: The Foundation, to learn more.
Have any questions about how to sell your business? Call us at 512-910-2700 or visit us at braatenwoods.com to learn more.