Are you ready to sell your business? You have worked hard to build your company, but it may be time to let it go. Whether you are retiring or moving on to another venture, there are many things to consider before you begin the process of marketing and selling your business. Preparing in advance is the key to maximizing the value you receive when you sell your company.
When selling a business, it’s wise to consult with an experienced Maryland business attorney. Before you schedule an appointment review these nine key things to consider when selling your business.
1. What will someone find when they place your business under a microscope?
Your business is profitable and operates efficiently; however, are there areas that need improvement? A seller will place your business under a microscope to meticulously review every aspect of your operation. Therefore, you must make a realistic assessment of your company. Because it's difficult to be critical of your own company, hire a professional financial expert and business auditor to review your company to identify areas that need attention before offering your company for purchase.
2. Do You Know the True Value of Your Company?
It can be very difficult for an owner to be objective when calculating the value of a company. For the owner, the value of the company includes the personal sacrifices and years of work building the business. While the owner’s hard work has value, a buyer is not likely to consider the owner’s hard work as an asset unless the owner is remaining as a consultant or a manager.
You may want to invest in retaining a professional business appraiser to assess the value of the company from the perspective of a buyer.
While your company’s value is based on assets, profits, and goodwill, the market also has a significant impact on the company’s value.
3. What Happens to Your Employees?
Many company owners view their employees as part of their family. Will the new owner retain your employees, or will they need to find new jobs? The new owner will have the ultimate say in whether employees remain with the company. Therefore, you need to carefully consider when to notify employees of the sale of the company so they can decide what is in their best interest regarding new employment options.
4. Consider Your Financial Future.
Do not fail to consider your financial future after the sale of your company. The first step is ensuring that the sale of your business will not harm your financial stability. You may anticipate a substantial profit from the sale of the company to invest in your next venture or support your financial needs. However, do not neglect to consider the capital gains tax you will owe when selling your business.
Also consider whether the sale of the business may create other financial liabilities, such as debts you guaranteed for the company. Those debts need to be paid in full to ensure you are not liable in the future if the company defaults on the payments.
Because your financial well-being may be closely tied to the company, retain a financial expert who will protect your personal interests.
5. Selling Businesses with Multiple Owners.
If you are a sole proprietor, you are in control of the sale of the company. However, if you are a member of an LLC, a partner, or a shareholder, the sale of the company becomes more complex. The bylaws, shareholders’ agreement, or operating agreement should direct how the company may be sold or transferred and how to divide the proceeds of the sale. You may need legal counsel to assist you and the other owners with ensuring the bylaws, shareholders’ agreement or operating agreement are followed precisely to avoid legal battles between owners regarding the sale or the division of the proceeds.
6. Invest in a Detailed Offering Memorandum.
A serious prospective buyer wants to know every detail of your business operation. A glossy, summary based on a quick DIY profile created with a template may not attract serious purchasers. Your Offering Memorandum should provide as much detail as possible about the company, including your services/products, daily operations, management/senior staff, financial reports, and future projections.
7. Maintaining Confidentiality During the Marketing Phase.
During the process of offering your company for sale, you may need to disclose trade secrets and confidential information to prospective buyers. You need an effective, comprehensive Non-Disclosure Agreement (NDA) to protect this information.
Without a binding NDA, the information you disclose to purchasers could be used by those parties for profit. Using a DIY template for an NDA could leave your company’s secrets vulnerable.
8. Consider the Entire Purchase Agreement and Not Just the Purchase Price.
There are many details included in a purchase agreement for a company. Many business owners focus entirely on the purchase price. However, ignoring the other details of the purchase agreement could be a costly mistake. Carefully review each term of the Offer to Purchase and consider how each term impacts the overall purchase and transfer of the company.
9. You Need Evidence to Substantiate Financial Claims.
A potential buyer wants proof that the company is profitable. If you claim revenue from a particular source, be prepared to provide evidence of receiving that revenue. Deposit records, bank statements, invoices, and other financial records are required to verify revenue. However, you may also need to be prepared to provide access to your accounts and records so a buyer can verify the information by having an accountant or financial expert hired by the buyer review the records.
One of the Most Important Considerations When Selling a Business
If you are selling your business, one of the most important considerations is whether you need a team of professionals to assist you with the marketing and sale. Sometimes, owners may handle the sale and transfer of the company without hiring assistance. However, if you have questions about the process, don’t hesitate to invest in a team to help you with the sale. The money you spend retaining professional assistance is an investment in the profits you receive from the sale of your company.
Contact Thienel Law today. Maryland business attorney Steve Thienel is dedicated to assisting clients in Maryland, Virginia, and throughout the DC Metro area.