LUTZ BUSINESS INSIGHTS
how does the business sale process work?
bill kenedy, LUTZ consulting and m&a shareholder
The sale of a business is usually a long journey. Most business owners have never bought or sold a business and have no reference or understanding of what the sale process entails. For reference, The Exit Planning Institute surveyed business owners, where 66% stated that they were not familiar with their business exit options.
Lack of understanding typical issues often frustrates business owners during a sale. Properly educating yourself on how the business sale process works can greatly reduce this level of aggravation. The following are some of the key areas we’ve seen business owners struggle with during a sale process:
#1 Confidentiality of information and how non-disclosure agreements work
Confidentiality is a key component of a business sale. Having important company information leaked can be disastrous. In addition, employees who learn about the sale before it is announced or completed can often get spooked for fear of losing their job under new ownership. So, you can understand why it’s critical to keep confidential information private.
To ensure sensitive information in a business sale is not released to unintended parties, those participating in the transaction are typically required to sign a non-disclosure agreement. This agreement helps protect your confidential information via a legal agreement.
#2 The differences in negotiating with one party versus running a full M&A process
Negotiating with only one interested party can be a risky move. Hiring an M&A advisor can expand your sale options and greatly improve your odds of selling your business at the best price. M&A advisors have access to a pool of interested buyers where they can negotiate multiple offers at once to not only find you the best deal, but also provide you with a back up in the event a deal falls through.
Entertaining only one interested buyer can be easily related to say, buying a pair of running shoes. You’re an avid runner looking for the perfect running shoes to help you finish that race you’ve been working towards your entire life. Would you go in to the store and buy the first pair of shoes you see? The answer to that is no. Because you’ve invested so much of your blood, sweat and tears into training for this race, you can be sure you are going to explore all your options. This means get every last detail of information you can, while do multiple comparisons on all the different shoe types, brands and more. The same goes for selling your business.
#3 The level of detail involved in the due diligence process
The due diligence process is a thorough investigation into exactly how your business operates. It takes a deep dive into your financials, how your management team works, the business structure, assets, liabilities and other pertinent information. Buyers typically insist on a due diligence process to identify any concerns or issues that could impact their perception of the Company’s value.
#4 When to inform key employees about the transaction
As stated in issue number one, confidentiality is key. Knowing when and who on your team to inform about the sale of your business can be a tricky, yet important step in the sale process. Your M&A advisor can help you get a better understanding of the who and when in this situation.
#5 How company performance during the sale process can impact the success of the transaction
Lastly, the performance of your business during the sale process can indeed impact closing the deal. Making sure you are operating efficiently during this time can be difficult if you are distracted with deal related issues. That is why it is important to hire an M&A advisor to work out the details for you so you can focus your time and energy on what’s important; running your business.
In all, a business sale transaction involves many moving parts that work best together with the help of an M&A advisor. You may not fully understand the sale process yet, but your advisor can help guide you through to a successful closing. For more information on our Lutz M&A services, please contact us.
ABOUT THE AUTHOR
BILL KENEDY + LUTZ CONSULTING AND M&A SHAREHOLDER
Bill Kenedy is a Lutz Consulting and M&A Shareholder at Lutz. He specializes in business valuation, litigation support, and merger and acquisition advisory services.
AREAS OF FOCUS
AFFILIATIONS AND CREDENTIALS
- American Institute of Certified Public Accountants, Member
- Nebraska Society of Certified Public Accountants, Member
- Certified Public Accountant
- Accredited in Business Valuation
- Certified in Financial Forensic
- Certified Exit Planning Advisor
- BSBA in Accounting, St. John’s University, Collegeville, MN
- Construction Financial Management Association, Past Treasurer, Board Member
- A Time to Heal (non-profit focused on cancer patients), Past Board Member
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- Understanding the Tax Implications of a Business Sale
- The M&A Client Experience
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- Issues During the Due Diligence Process in M&A Transactions
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- How to Increase the Value of Your Business
- When is the Right Time to Exit My Business?
- Lutz M&A Advises Triage Staffing on Recapitalization
- Lutz M&A Advises Hockenbergs on Recent Sale to Trimark USA LLC
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