Exiting a business can mean the biggest step in one's life, both financially and emotionally, since sweat, effort and tears have been poured into building the business over the years. It's a decision that takes careful thought. Potential buyers will always be curious as to why the owner is selling off his life's work. There can be a variety of reasons for selling, but broadly they fall into two categories: personal and business.
Personal factors are generally:
Business reasons can be the following:
You can handle the sale of the company yourself or use the help of specialists. At first glance, it might seem like there’s financial argument to doing it yourself, since it costs something to go through consultants. Also, selling a company can seem easier than it actually is. In fact, errors can be made when going the DIY route. One of the biggest mistakes is to misjudge the value of the company. It can be valued too high or too low. By overestimating the value of the company, the sale of the company may take a long time or fail.
Steps to selling a company:
A financial advisor can be of assistance in all of the previously described stages.
Before a business is sold, the company must be prepared for sale. This process has to be started early, and the earlier, the greater the possibilities to increase the value of the company. The preparation time depends on the size of the company, how many factors reduce the value, how orderly the accounting is, the nature of the existing contracts, etc. It may take several years for a business to become attractive. The preparation period helps to make accounting transparent, improve financial indicators, increase the number of customers, pay off tax debts, and terminate deleterious contracts. If the period of preparation for sale is too short, negative indicators may be concealed or expenses not recorded correctly. In general, the potential acquirer does research on various channels, and any concealed or incorrectly reported information will become apparent. This destroys trust. However, if enough time has been set aside for the sale, it is possible to choose when to sell the company. Choose a time when the company's sales results are consistently good, as this will allow the owners to point up the company's value. In addition to profitability, the company's vitality and growth potential are also important for investors.
When developing a strategy, the first thing is to determine the value of the company and set the price of the transaction. The most important thing is not to value the company too low or high. The former usually happens when the sale is rushed. An unrealistically high value is a dead end, because potential buyers lose interest. The sales price of a company can be determined in different ways, either based on assets or revenue or by some other method. The selection of method and factors to be considered is a decision that requires careful thought. Experts of the field are well poised to determine the fair value of the company. A third-party valuation service will make the company's price seem more trustworthy for the buyer.
Finding prospective buyers can take time, even years. To increase the number of interested parties, the sale of the company should be advertised to as many people as possible. If the company has a good reputation/is well-known, or if the buyer is local, advertising the sale is not so important. In the case of the former, the company or company brand is its own best advertisement. In the latter case, the buyer already exists.
But often a larger number of interested parties are needed. One way of increasing the number of prospective buyers is to use a transaction advisory service. This includes mapping and contacting potential buyers. The Grant Thornton Baltic transaction advisory team has an international network that can further increase the number of interested parties.
The big challenge is to find the right buyer. Once several potential buyers have been found, the most likely of them should be selected and negotiations continued. Potential acquirers are introduced to the company and the team in more detail. Everything that needed to be overhauled in the preparation phase was hopefully done, so that the buyer can now be left the best possible impression.
Negotiation skills are very necessary in disposal of a company. Potential buyers want to drive the price down. To not succumb to this pressure, it's a good idea to enlist the help of a transaction advisor who has previous experience in negotiations. A third party is not as emotionally invested in the transaction, and by citing objective evidence and explaining different points of view, the best solution can be found.
When selling a company, one of the most critical tasks is to conduct due diligence. In the course of due diligence, the buyer obtains information about how the business has functioned so far. In due diligence, various contracts (with employees, suppliers, customers) are reviewed and financial statements are analysed. Due diligence is mostly carried out in the financial, tax and legal fields. During due diligence, the buyer focuses on potential faults in the business to be purchased in order to gain an overview of whether the information provided by the seller so far is true and that there are no hidden obligations. Due diligence performed by a third party gives the buyer confidence and points out the risks that must be taken into account both when drawing up the sale agreement and after the transaction. Due diligence is also important for the seller. In the process, important details or assets that add value to the business may emerge. At the same time, newly revealed details give owners the opportunity to correct contracts or reports before the sale.
Drawing up a purchase and sale agreement involves documentation and legal terminology. Transaction advisors can assist in negotiating the contract and assist with transaction documentation, such as a non-disclosure agreement (NDA), company sale and purchase agreement (SPA) and other necessary documents.
Closing a deal is more than just affixing a signature. Follow-up activities are also mapped. Transaction advisors, for example, help companies with a larger market share prepare and submit merger notifications to the Competition Authority in order to obtain merger approval.
The structure of the transaction and the outcome of due diligence determine the post-transaction activities. Transaction consulting also consists of mitigating risks identified in the due diligence audit, terminating contracts or negotiating changes, integration of companies, etc. Often, during the sale, the buyer is given assurances and guarantees to which the buyer and the seller remain bound for a period of time.
If you have similar challenges and questions, please contact our specialists.
