Are You Ready to Open the Door to a Sale of Your Business?
The COVID-19 pandemic has taken a toll on many businesses, including those in the manufacturing sector.
It has resulted in supply chain challenges, shuttered businesses, and displaced employees, not to mention the tremendous personal impact on employees and their loved ones, many of whom have paid the ultimate sacrifice with their lives.
The pandemic has caused many workers to evaluate their employment situations, resulting in the Great Resignation as workers leave their jobs.
While it is not the Great Resignation as such, the pandemic and the various business challenges are also causing business owners, especially aging Baby Boomers, to ask themselves what comes next for their businesses.
Is it time to consider selling the business and retiring to a tropical island (or just spending more time golfing or playing with the grandkids)?
With trillions of dollars of private equity dry powder in the market, continuing uncertainty of impacts of the pandemic, and benefits to be gained from business consolidations, maybe it is a good time to consider the next phase for your business.
Market disruptions can present favorable opportunities for business combinations, turning very challenging times into win-win situations for all involved.
Tips for Success
If you are thinking about selling your business to take advantage of these opportunities, here are 10 tips to consider.
1. Plan Ahead. Don’t wait. Make sure your business records are in order and up to date well before you plan to sell. A well-organized business with its house in order makes a good impression on buyers and will facilitate the sale process.
2. Hire an Investment Banker. Even before you are considering selling your business, it is useful to connect with an investment banker that knows your industry.
An experienced investment banker can help position your business for sale, help you value your business to maximize your returns and help with the sale process itself.
Investment bankers tend to focus on specific industries, so make sure you select one with expertise in manufacturing businesses in your industry sector.
Shop around and interview a few so that you engage one that shares your sensibilities and has the needed expertise and demonstrated success in identifying buyers and closing deals.
3. Surround Yourself with Competent Advisors. Having a good accounting firm and legal counsel can be invaluable in preparing your business for sale and in assisting with the sale.
A sale process has many facets that happen on a parallel track. A buyer’s due diligence process will review financial matters, entity governance, ownership, contracts, employment matters, employee benefits, real estate, and environmental matters, among others.
Having accountants and attorneys that understand your business and can help facilitate the due diligence process, address any issues that surface, bring their experience to bear to know what things to sweat and what presents less worry, and ultimately document the transaction, will put you in good stead for a smooth process and desired outcome. It takes a village.
4. Consider the Tax Consequences. Use your advisors to help you assess the most tax efficient way to sell your business.
There are only a few ways to sell a business—an asset sale, a stock sale, a merger, and in some states, a stock exchange. Each sale method comes with different tax consequences, which will impact the bottom-line take-home amounts by the owners of the business.
Asset sales may have a two-tier tax, with a tax at the entity level followed by a tax on the owners upon distribution of the net sale proceeds.
Other forms of sale transactions may just have one level of tax at the owner level.
5. Have a Financial Statement Audit. While not every company has audited financial statements, audited financial statements assist buyers in assessing your company by providing an auditor’s assessment of your company’s financial status.
Having a reputable audit firm gives your company credibility and speeds the review and assessment of a company’s financial situation.
6. Sign an NDA. Before sharing your company information with others, make sure the parties have signed a non-disclosure agreement to hold information that is exchanged in confidence.
A company’s proprietary information and trade secrets are a valuable asset, and every business should take care to protect this information.
Businesses should take special care in dealing with competitors as potential buyers and may find it advisable to share information in waves so that their most sensitive information is only shared when it has become clear that a transaction is likely to occur with that buyer.
7. Come with Solutions. Every business will have its own issues and challenges to address. You may have a thorny litigation matter pending or an environmental hazard on your property.
Don’t put your head in the sand. Know how you intend to address challenging situations to minimize the impact on a buyer.
8. Advocate for Your Employees. If the plan is to have your employees be part of the transaction, make sure they are treated well to help ensure the success of the sale.
In many transactions, the seller’s workforce is key to the success of the business. Mapping employee benefits from seller to buyer so that employees have at least the same benefits that they are accustomed to will help alleviate some employee anxiety that is a natural part of change.
9. Don’t Forget to Look Close to Home. Consider the next generation of family members and current employees as buyers of the business. No one may know the business better than they do, and they may be keen to take the business to the next level.
10. Keep the Faith. The sale process can take a long time and have many twists and turns and ups and downs. Be reasonable, be patient, be forthcoming and be flexible. If it is meant to be, it will happen.
About the author: Donna Brooks is a partner in Shipman & Goodwin LLP’s business and finance practice, where she provides advice with respect to business organization, business operations and contracting, entity governance, asset and endowment management, finance, capital raising, securities offerings, equity compensation, joint ventures, and mergers and acquisitions.
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