John Previs

Thursday, 24 February 2005 19:00

Checking it twice

If you own a successful business, you likely have devoted years of time and effort to building it and creating value. But after years of involvement, thoughts of "What's next?" may arise. Assuming your children are not poised to take over the business, you may consider selling your company.

A lack of experience in selling a business can result in a loss of value and give rise to disputes with the buyer. Just as with pitching a sale to a prospective customer, you need to properly prepare yourself.

At a minimum, consider the following 10 issues.

1. Look inside. Start by answering these key questions.

* Why are you selling?

* What are your goals in selling, and how are they prioritized?

* What will you do after the sale?

2. Engage advisers early. If you don't have experience, buy it. Experienced accountants and attorneys can save you many times the cost of their services. The greatest value is achieved when advisers are engaged early in the sale process.

3. Get organized. Uncertainty creates anxiety. The more a buyer knows about your business and the more organized you appear, the more comfortable the buyer will be dealing with you. Make sure your records are up-to-date and your financials can be understood by someone not familiar with your business.

4. Know your value. Determine your asking price and walk-away price. Look at comparable sales or look for an industry valuation methodology. If none is available, ask yourself what you would pay for the business.

5. Recognize the tax consequences. Taxes can be minimized by proper planning and structuring of the terms of the deal.

6. Decide whether others matter. The goals of all sale transactions are to maximize the sales price and minimize the potential for post-closing disputes with the buyer. However, you may also have concerns for others who are affected by the transaction, such as family members in the business, employees or loyal customers. These concerns may have a substantial impact on the sales process and your attitude toward prospective buyers. Make sure you communicate these concerns to your advisers at the outset.

7. Find buyers. If there is no industry market for your business, your own network is the best source of identifying potential buyers. Identify a number of candidates on your own and tap into your advisers' networks to expand that list. Don't forget about your company's senior management team.

8. Exclude assets. Over time, things accumulate. A careful review for personal assets and other assets not necessary to the operation of the business can create additional value for you. For example, owned real estate can be retained and leased to the buyer to create a future income stream. If you don't exclude such assets, a buyer will want them all as part of the price.

9. Review deal terms. Your advisers can provide examples of transaction documents. Increase your knowledge of sale transactions and the sale process (to avoid surprises) by reviewing customary terms and conditions of sale with your advisers in advance.

10. Get third party consents. Determine if there are any third parties from whom you must obtain consent to sell your business. Do you have leases, licenses or supply arrangements that are key to the business but require the consent of the other party in order to sell assets or change the ownership of the business? Will there be problems in obtaining the consents?

John R. Previs is a shareholder with the law firm of Buchanan Ingersoll and is a member of the firm's Corporate Finance Section. Reach him at previsjr@bipc.com.