The Entrepreneur’s Expert Guest Post: Preparing Your Company To Sell by Nathan Green

By: Nathan Green, Managing Director -Spirit Advisors, LP

If you’re a business owner whose retirement goals depend upon the successful sale of your company, then you need to begin preparing your company to sell well in advance of your retirement date. Selling a company is much more involved then giving your employees a few months notice, finding and training your replacement, and planning your retirement party. In this article, we’ll look at six important steps to prepare for a successful sale transaction.

Since your business is a major asset within your retirement portfolio, being able to reduce your risk through liquidation will give you incredible peace of mind and financial flexibility. Creating a well thought out plan, and giving yourself enough time to execute will help set yourself up for success. Assuming you are committed to the sale process, the following steps will help make your business attractive to potential buyers, and increase the likelihood of completing the transaction:

1. Clean Up Your Books – buyers are looking for a proven track record of profitability, usually at least three years of financials will be requested. If you intentionally lower your earnings to pay less in income taxes, you need to understand this is a short-term strategy when it comes to selling your business. You want your numbers to be accurate, and your profits to be maximized. Look for cost savings, and eliminate as many non-operating costs from your financials as possible.

2. Choose A Financial Advisor – selling your company is an enormous task in terms of time and focus. Engaging a qualified Merger and Acquisition (M&A) Advisor will help you maximize your sale value and spread out the workload, while being able to maintain focus on managing your business and executing your retirement plan. The qualified advisor will be able to leverage their buyer contacts, and create an environment where buyers are bidding on your business vs. negotiating directly with you as the seller. The qualified advisor will manage the communication process effectively and efficiently.

3. Value Your Business – getting a professional valuation will give you valuable insight into what your company is actually worth. Several factors impact the value of your company, so it is best to have an in depth valuation performed. Most M&A Advisors will perform this as part of their services, and give you the ability to determine if you want to move forward with the sale process. In a lot of cases, you will glean insight into initiatives that will increase the value of your company if you choose not to begin the sale process. 

4. Determine Net Proceeds – buyers want to acquire your business on a debt free basis, which means any debt on your balance sheet will be paid off at closing from your sale proceeds. In addition, most buyers are seeking to shield themselves from potential liabilities after they purchase your company. This is achieved through purchasing the assets of your company vs. the stock or membership interests. Depending on your legal structure, this could materially impact your tax liability resulting from the sale. Have a competent tax CPA help you estimate your tax liability from the sale.

5. Engage an M&A Attorney – there are many practice areas within the law field such as criminal defense, trust and estate planning, business and commercial law, etc. Find an attorney who specializes in areas of law and industry relevant to your specific transaction. The qualified attorney will help facilitate legal due diligence (review of contracts, permits, organizational documents and other materials related to your business) and help you draft and negotiate the following documents:

• Confidentiality Agreement 
• Letter of Intent
• Transaction Documents

6. Do Your Diligence – the previous five steps will help you identify potential obstacles to selling your business. It’s important to remember, that no business is perfect, nor does every buyer expect this. Use this step as an opportunity to identify value enhancement, management and process deficiencies, customer uncertainties, and potential legal concerns. Do your best to solve these issues prior to beginning the process, and to be able to address or minimize concerns from a potential buyer. Issues related to these items can have a detrimental impact on buyer’s offer and/or interest in your company.

I hope you found this article helpful. If you have any questions or comments, I can be reached at 979-595-6811 or nathan@spiritadvisorsgroup.com.

Good Luck 

Nathan Green