Businesses are sold or merged for a number of reasons, including illness, retirement, a partnership dispute, or untimely death. If you’re looking to sell your company, the first step is to hire an experienced business consultant. Mergers and acquisitions are complex transactions, so putting together a strong team and ensuring everyone is on the same page is crucial.
Before selling, you’ll need to consider what timing is best and how much you can charge buyers. Keep running the business while the sale is happening, so it remains profitable and attractive. At the same time, prepare all the necessary documents, interact with several potential buyers, and devise a plan for what to do after the sale.
Mergers and Acquisitions: 8 Rules for Navigating a Successful Business Sale
1. Hire an Experienced Business Consultant
Most business owners have spent decades building up and running their companies. While they are experts in their field, they might not have a lot of experience selling businesses. They might also have a strong emotional attachment to their company, which prevents them from making the most rational decision.
In this case, hiring a consultant is a good idea. An acquisitions specialist has the professional training and experience necessary to navigate the sale of businesses in various industries. They will help you with every part of the process, including the planning phase, putting together a team of specialists, preparing all the necessary documents, and vetting and choosing buyers.
2. Put Together a Strong Team
Aside from your consultant, you will need to hire additional professionals such as a lawyer, an appraiser, and an accountant. To facilitate your sale, choose people you fully trust and who have experience with business acquisitions. Your attorney will check your company’s legal status to ensure there are no issues, then put together the necessary documents, including the leases, contracts, and licensing.
Even if you already have a lawyer and an accountant for your business, you might need to find someone more specific who specializes in selling businesses. They can not only submit the relevant financial information to the buyer, but they will also check the contractual agreement with your interests in mind. By getting the right kind of legal help, you can save millions of dollars.
3. Consider the Timing of Your Sale and the Business’s Valuation
One of the first questions a potential buyer might ask is, “Why are you selling your company right now?” Make sure you have a good answer to this. Some common reasons why people sell include retirement, an illness, or a dispute with a partner. A successful sale takes a lot of planning, so most CEOs and founders start preparing several years in advance.
If you plan for the sale early, you have enough time to increase your business’s attractiveness and value. Elements that make a company more valuable include a contract that spans several years, a consistent income, a strong and loyal customer base, and steadily increasing profits. As your sale draws closer, contact a business appraiser and get a valuation. They will confirm your business’s strengths and weaknesses, so you can continue to work on them.
4. Run the Business As Usual
Once you’ve found one or more buyers, you’ll need to negotiate with them and create a contract that works for both parties. Acquisitions often fall through, so it could take you months or even years to sell your company. During this time, it’s still your responsibility to run the business.
If you become more focused on the sale than the company itself, your profitability might drop, which puts the acquisition at risk. This is another reason why you need a good business consultant and a strong team. They will handle the paperwork related to the acquisition, while you work on keeping the company profitable.
5. Don’t Hide Anything
6. Prepare All the Necessary Documents in Advance
Providing the necessary documentation is one of the most time-consuming parts of a sale, and it requires you to be very organized. Potential buyers will want to see financial documents, supplier contracts, lists of contacts, and paperwork related to your premises. They will ask you to provide three or four years’ worth of tax returns and financial statements.
Before you hand these over, show them to your accountant, and discuss the financial strengths and weaknesses of your company. Next, compile a list of all the assets that will be sold along with your business, such as manufacturing equipment, furniture, and electronic devices. Provide buyers with a list of your suppliers, business partners, and customers as well as an operating manual or summary of how your business is run.
7. Interact Safely with Buyers
Because acquisitions can fall through, even at the last minute, working with two buyers at once could be a good idea. Ask each one to sign a nondisclosure agreement. Even though the process can take months, interact with buyers regularly. Put any agreements in writing, so there is no ambiguity or room for misunderstandings.
8. Consider What You Will Do with the Proceeds
In 2021, the average US business with employees generated over $4 million in profits. Even if you run a small company, it’s likely that you will receive a six, seven, or even eight-figure amount for your company. If you’ve never had access to this kind of money, it can be overwhelming. Don’t rush into anything.
After you’ve received the proceeds of your sale, take at least six months to decide what to do with them. If necessary, hire a financial advisor, or speak to your consultant about how to spend the money. You might consider investing it in another company, getting out of debt, buying an annuity or similar financial product, or investing in real estate. Don’t forget to speak to your accountant about the tax implications of your sale.