Before selling your business, you should take time to prepare and ensure it is in the best possible shape to attract a potential buyer. Here are seven things every business owner should consider when preparing to sell their company:
- Get a valuation
To better understand how your business will be reviewed and valued by third parties, you should get a detailed valuation of your company from a reputable business valuation expert. A proper valuation will give you a better sense of your company’s worth. It may also highlight where you can improve the business to add value. - Do your due diligence
Make sure you take a good look at your company, anticipate any questions a buyer might have, and address things that could become an issue before it comes up during negotiations. You should update the company’s internal documents, check that your company is compliant with all laws and regulations, make sure that any licenses or permits are in place and current, check that all employee contracts and leases are valid and enforceable, and take care of any outstanding or potential legal claims. Review your aging accounts receivables. Review your business contracts and employment processes. Surprises can cause a deal to fail, so proactively addressing any issues is vital to a deal’s success. - Organize and update company financials and corporate documents
Ensure that you have your financial documents, like balance sheets and statements, organized and ready to show a potential purchaser that your company is financially healthy. You should review and organize board minutes, licenses, employee contracts, etc. While you are preparing the documentation, double-check that everything is valid and up to date. - Highlight your company’s assets and standing in the Market
Take a deep dive into reviewing your competitors. Review and understand market trends affecting your industry. A potential buyer wants to see that your company is in good shape and will continue to succeed. Make your company more attractive to buyers by showing financial reporting, projections for the future, and the specific ways your company succeeds in its industry. - Identify the buyer
Determine who is interested in your business. Is the potential purchaser a strategic or a financial buyer? A strategic buyer wants your business to improve their own, while a financial buyer wants your business because of your profits. Consider the motivations of any potential purchasers to make the sale as favorable as possible. - Have protections in place
You will want to have a confidentiality agreement ready for potential buyers and to take steps to protect your trade secrets and confidential information regardless of whether they sign the agreement. Consult with an attorney to ensure that you have the right documents in place to protect your company. - Consider taxation
Consult with your accountant and business attorney about the variety of ways your company could be restructured to get a favorable tax outcome on the sale. Additionally, depending on the size of your company, you might want to consider alternatives methods for the sale itself to defer paying taxes.
Mallon Lonnquist Morris & Watrous, LLC, is a business, employment, real estate, and litigation law firm based in Denver, Colorado. The attorney at MLMW regularly represent clients on both sides of business purchase transactions. MLMW focuses its M&A practice on mid-market deals ranging from $5 million to $50 million.