06 Dec Preparing for the Successful Sale of Your Business
Preparing your company for a future successful sale to best capture optimal value and to keep your transactional costs modest requires pro-active preparation, coupled with a broad general understanding of:
(i) the pre-sale, sale, and post-sale transaction process; and
(ii) the differing roles and motivations of various participants in the process.
Through understanding and taking pro-active preparatory steps now, you will be prepared, both psychologically and practically on a real-world level, to make the right choices at the right time regarding if, when, and how to sell your company to capture optimal value while minimizing related transaction expenses.
You have most of your power and time now, not when the pressure, speed and expense of your actual sale transaction are upon you.
Over the last hundred years, and increasingly over recent decades, the lifespan of companies has been dramatically shrinking as the pace of life has quickened. The average lifespan of a family-owned business in recent times is only 24 years. How many large, public, institutional blue-chip companies do you think today are still in the Dow 30 which were there 30 years ago? The answer is only 12 companies, less than half. Industries and business sectors are increasingly being disrupted and forever altered as new business methods and technologies arise and are combined in novel ways, and new companies are formed both in the United States and abroad that alter the competitive landscape. Older companies adapt and change if they can, are sold, or just die and disappear, with shareholder value disappearing with them.
For many company owners, the thought of the eventual sale of their company is akin to the thought of their own personal mortality, a thought to be avoided. In large part, it is a fear of the unknown. No doubt that is why it has been reported that almost one-third of family business owners have no plan to ever retire. Yet virtually every smart and experienced businessperson will acknowledge that every company is or should be available to be sold at the right price at the right time. Indeed, in addition to enriching you, the sale of your company might involve you combining your company with another company in a manner which raises the combined entity to new heights (2+2=7), with an ongoing new challenging opportunity for you in the new combined entity (if you want it).
Key Pro-Active Preparatory Steps
- Review, complete, and organize your company’s financial statements; determine financial trends; obtain a valuation appraisal; strongly consider upgrading your company’s financials.
- Review, complete and organize your company’s legal documents.
- Obtain competent tax advice for the optimal structure of your company today and for a future transition or sales transaction.
- Discuss your goals for yourself and your company with its other owners, if any; consider entering into a legally binding agreement now to memorialize the same.
- Build your entire M&A transaction value team.
- Determine current marketplace trends regarding your company.
- Prepare your draft M&A non-disclosure agreement and your draft front-loaded letter of intent for the sale of your company now.
Each of us gets to choose his or her own level of competency or complacency. We all get to choose our own path, and we are the ones who live with the outcomes produced by our own mindset and choices. Based upon decades of direct participation by this author in his capacity representing clients as a M&A lawyer in scores of all types of M&A transactions, and in observing, recognizing, and advising on what succeeds and what fails for business sellers firsthand, it is his strong view you should take pro-active preparatory steps now for you to better enable yourself to achieve a future successful sale of your business, and in doing so best capture optimal value while keeping your transactional costs modest.