The Road to Sale: A CEO’s Guide

For many entrepreneurs, the prospect of selling their company can be a daunting proposition. Building a business takes years of dedication, determination, resources, and energy. While deciding to sell business is never a simple process, the rewards of a successful acquisition can be life-changing.

Understanding the process and having good resources in place prior to being ready to sell will ultimately lead to a smoother transaction — and a higher sale price.

Many of the qualities that make an entrepreneur successful in building a business will benefit them in the sale of their business. In this article, we take a closer look at which are most important.

Preparation

An acquisition is a process that can take many months from the minute you decide to sell until the transaction is ultimately completed. It’s critical to put together a plan to prioritize goals and outline the desired outcomes of the liquidity event.

Two important questions you should ask yourself before selling your company are:

• whether to sell to a strategic buyer or a financial buyer, and
• whether or not you would want to stay with the company once it’s under new ownership.

Surround yourself with a team of trusted experts and advisors that have experience completing transactions in your industry. You’ll want to to put together a deal team comprised of a lawyer, an accountant, and an M&A advisor or investment banker. . These professionals are critical in gathering the data required to place a proper value on your business, and in organizing financial statements requested by the buyer during the due diligence phase of negotiations.

The Sale

It’s imperative that you operate your business efficiently during the sale process. A sale tends to occupy large chunks of time and attention if not strategically prepared for. Plus, maintaining a high level of company performance throughout the negotiations will make your business a more attractive investment.

Carefully consider who within the company needs to know about the sale, and only disclose it to a limited number of parties as to avoid anxiety or concern amongst your employees and/or customers.

Once your deal team or advisor has identified a prospective buyer, non-disclosure agreements (NDAs) will be exchanged. If the buyer is interested, they will issue a letter of intent (LOI), which is a non binding offer that outlines the major terms of the agreement. As a general rule of thumb, the more thorough and and specific you can be in the early stages of the deal, the better.

A crucial decision at this point is whether to structure the deal as a stock sale or an asset sale. Sellers tend to favor a cash or stock sales as they obtain clear, long-term capital gains treatments. The pros and cons of each structure varies based on the type and size of business, which is yet another reason why it is important to hire an experienced M&A advisor to help run the process.

Finally, it is essential to address in advance how the business will be transitioned to its new owners.

After the Sale

Generally speaking, involvement in a business does not conclude when the sale is complete. More often than not, the buyer will offer lucrative contracts to the owners as well as key executives to help stay on and transition the business. Depending on the terms of the agreement, incentive payments known as earnouts may be included, which are contingent on the performance of the business.
Upon fully exiting the company, entrepreneurs can expect to have the mixed emotions of excitement and achievement, coupled with sadness and loss. The emotional fallout associated with the sale of a company is legitimate. Similarly to raising children, entrepreneurs pour their heart, soul, and energy into growing a business that can succeed on its own. Once the business is fully under new ownership, the most important thing left of its former owner is his or her legacy. At that point take a few months off to rest and relax — at which point you’ll probably be ready to hit the ground running for your the next venture!