Transaction Preparation

As with most planning, preparation is key to a successful sale of a company.  You can eliminate or avoid possible issues in a future sale by addressing them now.  You can also achieve maximizing the selling price by implementing certain steps to ensure a smooth process.  There are numerous matters to keep in mind as you prepare for a sale transaction including:

Identify your buyer universe

Possible buyers can be grouped into two categories:  strategic and financial.  You will need to determine which buyer is best suited for your company and goals in a transaction.  Strategic buyers believe they can take your company’s technology and much more effectively exploit your product/know-how in their market segment.  Strategic buyers will generally pay much more than financial buyers because they can either recognize sales and cost synergies with your business, have different cost structures or different tax rates, to name a few.  A financial buyer is buying the company based on its financial statements.  A financial buyer wants to lock in key employees and will be more likely than a strategic buyer to retain employees. 

Review Your Business Structure

Many years ago, most companies were C Corporations.  Now many are S Corporations and limited liability companies (LLC’s).  S Corporations and LLCs are pass-through entities, with a single level of tax on income; whereas C Corporations have a double level of tax.  Ensuring you have the appropriate business structure will help towards you achieving your goals.

Clean up Your Financials

 It’s never too early to start planning for a sale.  Invest time with financials advisors and accountants now and it will reap significant dividends in your future. The financial experts will provide opinions of the company’s financial status and identifies potential issues. CPA firms can also conduct a critical review of the company’s management and an independent verification of financial information. An audit provides the highest level of assurance that the financials are in line with generally accepted accounting practices (GAAP). This might be the best option for owners preparing to sell a business.

Perform Your Own Due Diligence on Your Company

Identify the weaknesses in your own business.  You need to assume that a buyer will discover potential issues that will cause delay or for them to walk.  It is important to look objectively at your business through the eyes of a buyer.  Start a Due Diligence checklist.

A. Are the Books and Records Up to Date?

Review both internal and external documents (i.e., filings with the state and bylaws, minutes, etc.), your organizational chart, list of owners with percentages owned, List of all states where you do business

B. Tax and Financial Information

Tax returns and audited financial statements for three years, list of all debt, assets, A/R, A/P, and depreciation schedules.

C. Real Estate

List of all real property

D. Employees and Benefit Plans

List of employees, copy of Employee Handbook, copies of all qualified plans and summary plan descriptions (both collectively and non-collectively bargained), labor disputes, worker’s compensation history and unemployment insurance claims history

E. Licenses and Permits

List of all governmental licenses, permits or consents, and any correspondence or documents relating to any proceedings of any regulatory agency

F. Environmental Issues.

Copies of any audits and inspections, copies of any past remedial action and copies of any EPA or other orders

G. Key Products and services

A list of all key products and services including products in the pipeline/ research & development

H. Key Relationships and Contracts

List of key customers, list of supply or service agreements and a list of other key contracts

I. Litigation

List of all pending and contingent litigation

J. Insurance Coverage

List of all liability and insurance policies and a list of all covered and uncovered claims for past three years

The time to start preparing is now, rather than later.  Objective Capital Partners can help guide you on the important details in preparing for a transaction.


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