You’ve worked hard building a business. Now it’s time to sell – maybe to retire, maybe to do something different, maybe because the market timing feels right. Selling a business is always a challenge, even when the sale is straightforward. Here are a few survival tips.
Tip 1 – Get Organized
There is more value in an efficient, well-organized company that a potential buyer can easily understand.
Catch up on any paperwork you’ve let linger; stay current with your financials; organize your contract collection. In due diligence, you’ll need to be able to provide copies of important documents. Collecting them in advance means fewer late nights and more time to focus on strategy.
Make sure your corporate housekeeping is up to date – your minute books are current, state annual reports are filed, business licenses are renewed. The buyer will typically want to look at these items in due diligence, often as an indication of the care with which you managed your business.
Clean up every outstanding dispute you can. Outstanding issues often lead to price reductions and tough indemnification clauses.
Tip 2 – Identify your Advisors Early
Identify and commit your advisors early in the process (accounting, tax, legal).
Find qualified advisors that you trust and that know you and your business. Let them know your stress points, when you will walk away from the deal, what you might concede. And then … empower them to protect you.
Tip 3 – Look in the Mirror
Take a look at your business from the perspective of an outsider looking at it for the first time.
Let your advisors help you with this. What are your idiosyncrasies in the way you manage your business or keep your books that you will need to explain? Everyone has some.
Identifying the idiosyncrasies early helps you remain in control. It prevents the buyer from finding a perceived problem that you haven’t already considered. Surprises give the buyer the upper hand in negotiations, and that can lead to unnecessary concessions or price reductions.
Tip 4 – Make the Process Work for You
Protect yourself and be on the lookout for red flags.
Put a Non-Disclosure Agreement (NDA) in place before sharing trade secrets or any other confidential information.
Prepare for several rounds of negotiations on the letter of intent with the buyer. This is the best time to feel out the potential buyer. Use this time to decide if the sale is a good fit for you. Money may not be the most important aspect of selling your business. Consider your employees, your reputation and your legacy. If you are being asked to stay with the business, will you want to work for this buyer?
Expect frustrations and delays during due diligence. The buyer will ask questions and dig through data to figure out the business and identify the risk profile. Because you followed Tip 3, you have already recognized the idiosyncrasies of the business and are prepared to answer difficult questions.
Don’t be intimidated by the due diligence request. It’s always over-inclusive so that nothing accidentally gets overlooked. Because you followed Tip 1, you will have most of the due diligence items already gathered. Let your lawyer be the bad guy and push back on the requests that are irrelevant or overly burdensome.
The buyer’s lawyers may not yet understand your business. Be patient. Let your attorney explain the relevancy of what buyer’s lawyers are seeing.
Be ready to feel like you are being second guessed in every business decision you have ever made. Rarely is that the intention (although it can certainly be a negotiating tactic), but under the time pressure of an acquisition, the barrage of questions can often be overwhelming. Let your lawyer field the questions and diffuse any stressful situations that may arise.
Take particular care with the Representations and Warranties (reps and warranties) that you will need to make in the purchase agreement. It may feel duplicative because you will have given a lot of the information as part of due diligence. Nonetheless, the reps and warranties and the corresponding schedules need to be correct and complete because the buyer is entitled to rely on them. The buyer may have recourse against you for expenses incurred due to an incorrect rep, warranty or schedule.
As with the letter of intent, expect multiple rounds of negotiations on the purchase agreement and the ancillary documents.
Tip 5 – Don’t Underestimate the Emotional Stress
Selling a business is hard. Always. You will be dealing with the sale process itself while also running your business. You will need to decide when to tell your employees and then calm their frayed nerves.
There will be times during the process when you feel interrogated, that you’ll never agree, that the lawyers are speaking a foreign language and everything is getting lost in translation. That is normal. Trust your advisors from Tip 2 and allow them to handle the details and look out for your best interests.
And when the big day comes, you will feel a loss. The business has been yours for years. And now it is gone. Even if you have grand plans for what you will do after the sale. Even if your bank account is full beyond your wildest dreams, there will be a moment of loss. Embrace it and move on.
Congratulations. Here’s to your next adventure!