The sale of any business or even part of one, follows a set of logical steps. The deal is always possible even if one or more of the steps are left out. But by leaving steps out, value may fall, as might efficiency of the sale. You will notice, as this series unfolds, that I bang on a number of drums. This is one of them. Always have your business prepared for sale.
Preparation
By having the business prepared for sale, even at a time when that sale is unlikely, means that in the dramatic event of a forced sale beyond one’s control, the best price can be achieved within a reasonable time.
During this course we will learn about preparing the documents, maintaining crucial records and preparing a killer pitch deck for the benefit of your purchaser. What can you expect from there?
Once you decide it is time to actually move ahead and sell the business, your appointed business transfer intermediary will have a set of guideline processes to follow. This will commence with you answering a set of questions about your business which will give the broker a good idea of how the business operates, but more importantly will help set you up to present the business to the market.
In due course I will help you set up your own pitch deck in an easy way, far surpassing the standards set by most brokers. More about that later.
Your broker will present the business to a number of prospective buyers, importantly not just one or even a few. If he has done his job properly, you will be shielded from the least likely prospects, and will only have to attend the follow up meetings with well qualified investor buyers.
It is generally a good idea as a seller to not attend the initial negotiations, but rather to wait for draft documents to be presented, written and preferably signed as a formal offer by the purchaser. Of course this is a matter of personal preference of each seller, but I maintain that staying in the background gives you the chance to discuss any offers with your intermediary without pressure from a buyer’s death stare, cold steely eyes boring into your “desperate to sell” quaking heart. You will also then be in a better position to formulate a counter offer if necessary, thereby once again maximising your return.
Success
With an agreement of sale having been negotiated and signed by both parties, a due diligence period will follow where all the representations made in the pitch will need to be proven by the seller. It is important that you do not agree to any due diligence terms which you know you will not be able to live up to. Particularly, you should avoid subjective terms such as “ensure that the business lives up to the purchaser’s expectations”.
When the due diligence is complete, the business is handed to the new owner, against a rather tidy sum of money. On bigger deals the seller is very often required to stay in the business, particularly if there is a thin management structure. We’ll deal with this in more detail later, too.