Selling Your Business? 5 Steps To Maximize Your Return
August 8, 2016
Press Releases, Publications
By Salvatore J. Bauccio
When a business owner makes the decision to sell a company, numerous factors can affect the price a buyer is willing to pay. Even relatively small oversights raise the prospect that a business owner will leave money on the table in the transaction.
Finding a buyer is very much like dating – it is critical for a business to put its best foot forward, because finding the right match is the only way to ensure a successful venture.
Here are five steps business owners can take to make their company more attractive to a potential buyer and maximize the value of their years of hard work:
1) Prepare professional, GAAP-compliant financial records
Complete, independently prepared financial records are a critical component of any sale. Potential buyers will typically require financial records to conform to Generally Accepted Accounting Principles (GAAP) to ensure they get the kind of certainty and apples-to-apples comparison they need in order to make a sound decision. It is advisable to include at least three to five years of data to give a buyer a complete picture of the direction the business is heading.
Without these critical documents, buyers are generally left with three options – delay a sale until the proper records are completed, reduce the purchase price to account for additional risk, or walk away from the deal completely.
2) Get commitments from key employees
Purchasing a business’s assets and infrastructure is only one part of the equation; retaining key employees is a critical component of maintaining a business’s success following a sale. If all of the workers quit on the first day under new ownership, the value of the business decreases dramatically – particularly if those workers seek employment with a direct competitor.
Ensuring the most important employees sign a non-compete agreement will go a long way toward moderating these concerns for potential buyers.
3) Maintain key relationships in writing
Just as it is important to keep the best employees on the job following a sale, it is equally essential to ensure contracts are in place to maintain the relationships that helped make your company competitive in the first place. The absence of contracts with important suppliers and vendors can present a serious red flag for potential buyers. A company could incur a significant financial hit if a critical vendor or supplier suddenly severs a crucial business arrangement shortly after the acquisition.
4) Keep excellent corporate records
Shareholder agreements, bylaws and articles of incorporation provide a wealth of information to help potential buyers understand the rights of owners and other information necessary to complete a sale. These documents essentially provide a road map during discussions of a potential acquisition. Incomplete or missing documents can pose a significant obstacle to a deal.
For example, buyers need certainty (1) that the person they are dealing with from the seller team actually has authority to transact on behalf of the seller, and (2) that the persons who claim to own the target company actually owns the target company. Information such as this would be set forth within the target company’s corporate records.
5) Ensure all intellectual property is protected
Purchasing an existing business also means taking ownership of the patents, copyrights and branding that have been established over years, or even decades of hard work. For example, if an entrepreneur wanted to buy Coca-Cola, they wouldn’t just be paying for the recipe for a sugary beverage and some infrastructure. They would be buying a world-famous brand name and all of the intellectual property (i.e., trademarks, copyrights and patents) that come with it.
Without this legal protection, there is nothing to prevent another entrepreneur from swooping in and copying the same formula that led to the original business’s success. A lack of trademark, copyright and patent protection holds greater risks than spoiling a potential sale. It could easily turn today’s potential buyer into tomorrow’s fierce competitor.
Salvatore J. Bauccio is a member of McNees Wallace & Nurick LLC’s Corporate & Tax and Healthcare Practice groups. He has closed more than $1 billion of mergers, acquisitions and loan financings in the senior housing industry. Mr. Bauccio can be reached at 717-237-5238 or firstname.lastname@example.org
McNees is a full-service law firm based in central Pennsylvania with more than 130 attorneys representing corporations, associations, institutions and individuals. The firm serves clients worldwide from offices in Harrisburg, Lancaster, State College and Scranton, PA; Columbus, OH; and Washington, D.C. McNees is also a member of the ALFA International Global Legal Network. www.mcneeslaw.com | @McNeeslaw | LinkedIn