Selling Your Business: Inside the Selling Process
There’s no question. Selling your business is an exciting - and daunting - process. You’ll want a partner by your side who A.) You can trust and B.) Knows what they’re doing. When you have that right partner, the small business sales process becomes less daunting and a lot more exciting.
As the trusted private equity partner for lower to middle-market business owners, Borgman Capital provides key insight inside the sales process. Preparation of financial statements, foreasts, and separating personal from business expenses aside, in this article you’ll find three key tips to keep in mind when preparing to sell your business.
Remember that Selling Your Business is Different Than Selling Your House
Decide How You Want to Sell Your Business
Hire a Mergers and Acquisitions Attorney
1. Remember that Selling Your Business is Different Than Selling Your House
We make this comparison because, like selling a business, selling your house is a large transaction to which many people can relate. But the two are very different, for a number of reasons.
While you may have some cherished memories, your legacy is not tied up in your home. Your business, on the other hand, is an ecosystem you built through trials and tribulations, by taking the road less traveled, and by persevering when it would have been so easy to throw in the towel. You want to trust the next owner to take care of it––to nurture the environment you created, strengthen upon what you built, and engage the employees within.
Selling your home often does not involve people’s livelihoods. Sure, it impacts members of your household, but selling your business means potentially affecting employees’ salaries, their job security, and ultimately, how they provide for themselves and their families.
The market of potential buyers is a lot smaller for your business than it is your home. Consider above when we mentioned that selling your home is more relatable; that’s because more people are in the market to buy a home than they are a business.
Speaking of buyers, if any are comparing the value of your home to others in the neighborhood, there are pretty direct comparables. In selling your business, the comparables get quite a bit more complicated.
Finally, the inspection process for selling your home typically lasts a few days. Due diligence, the in-depth process by which a prospective buyer conducts a thorough business, financial, and legal investigation of a company, takes thirty days or more and you will need to share information you’ve likely never shared with anyone, meaning you must have a lot of trust in the person buying your company.
2. Decide How You Want to Sell Your Business
Selling your business is more than pounding a For Sale sign by the side of the road. You’ll want to sit down and have a serious think about a few things, such as what is your ideal transaction, and what is the right timing for you? Additionally, you’ll have to decide whether or not you want to sell the entire business, or still retain some equity, among other decisions. Some high-level options for selling your business include:
Sell to a Strategic Buyer - The strategic buyer is someone who owns one or more businesses in your industry. Therefore, this buyer should realize synergies and understand the valuation of your company.
Sell to a Private Equity Firm - If you have a high-quality management team in place, a private equity firm may be the buyer for you. To learn how to identify a quality private equity partner, check out our blog post on the five must-have characteristics of a good private equity firm.
Sell to Management - Your management team should know just about everything there is to know about your business, in which case, they may be your ideal buyer. However, it’s likely that they won’t be able to invest as much capital as a strategic or financial buyer. Therefore, an additional option is to have your management team partner with a Private Equity Firm.
Sell to Employees (ESOP) - The Employee Stock Ownership Plan (ESOP) is a trust fund wherein the company deposits new shares of its own stock or cash to purchase existing shares, which are subsequently allocated to individual employee accounts. It’s a surefire way to get employees vested in the entire company versus just their own individual projects; however, it may not make sense for companies with less than 25 employees.
3. Hire an Experienced Mergers and Acquisitions Attorney
This is undeniably one of the best decisions you can make on your journey to selling your business. Why?
For starters, their practice is focused on mergers and acquisitions (M&A). This means you can concentrate on running your business successfully while in the process of selling it.
You’re probably not their first client. They should know the universe of buyers in your geography and have an opinion on who’s good to work with.
When you go through a transaction, there are hundreds of pages of documents. An M&A attorney will not only walk you through it all - they’ll explain it in plain English.
They conduct negotiations, draft memorandums and letters of intent, and will thoroughly research the other businesses to ensure you’re not met with any last-minute surprises.
They review contracts to make sure everything abides by federal and state laws, including non-compete agreements, due diligence, and preparation of confidentiality.
They prepare the business for the transition, and advise you about your fiduciary duties and shareholder rights under the new arrangement.
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You only get one shot at selling your business. Make sure you do it the right way. Not only do you want an M&A attorney you can trust, you also want a buyer who, at the end of the long road (typically 12-24 months), will have added a great deal of value to your company.
The Borgman Capital team is an ally to lower middle market business owners. Whether or not you’re considering selling your business to a financial buyer, strategic buyer, your employees, or other options, we are happy to share our knowledge and resources. Connect with us today and learn how we can help guide you on your journey of becoming a business seller.
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