Selling the Business: What Else Should You Be Thinking About?

You have got your team of advisors lined up and you are ready to sell your company. What else should you be thinking about?

1. Do you have skeletons in your company closet?

Most businesses have lingering issues that can be resolved with concentrated effort.  Examining your business operations and records with a critical eye now and preemptively addressing a buyer’s concerns, whether by resolving the issue or preparing clear explanatory disclosure, can go a long way toward maintaining credibility with a buyer, preserving the purchase price, and reducing your post-closing indemnity risk.  

Here are some common problem areas:

• Financial statements: Will your historical financial statements and related records withstand a buyer’s scrutiny?
• Capitalization: Can you trace the history of all original issuances of equity to the current holders of equity?
• Contracts: Are your key commercial relationships documented? Have both sides actually signed the relevant agreements?  

To be blunt, are you willing to endure an (often-overestimated) dollar-for-dollar deduction from your sale proceeds for fixable issues?  In certain limited situations, this is unavoidable, but in many, many situations we have been able to work with interested parties to virtually eliminate these issues, given sufficient attention to the matter. 

2. Is your entity type an undiscovered asset?

The entity in which you placed or grew your business may have attributes that can be extremely attractive to a buyer.  For example, buyers and sellers of S corporations may make use of F reorgs or 338(h)(10) elections to obtain additional tax benefits.  Correctly implemented, these coordinated, pre-closing actions will allow a buyer to step up the tax basis of your business assets and benefit from additional post-closing tax deductions.  Many buyers will offer more for your business than they otherwise would because of related tax benefits.  

3. Your second job.

You will have a second job until the business is sold.  One of your goals should be to protect and preserve all of the value you have created as you consider your strategic alternatives.  This means you must keep running the company as diligently as if you were never going to sell it while simultaneously exploring a potential sale.

4. When and what should you communicate to interested parties?

You will have to be careful and deliberate in how you communicate with overlapping interested parties so as not to inadvertently destroy company value.  Your co-owners, your employees, your clients, and your business community will all be very interested in how a sale may affect them, and each will have a different perspective on the proposed transaction. 

When sharing any information, be careful as to timing and content.  For each interested group, you will generally want to share information on a need-to-know basis, framed with the special interests of that group in mind.  For example:

• For current executives and staff—greater opportunity for career development on a bigger platform. Your current executives and staff will be especially interested in your plans after the transaction so be prepared to discuss such matters.
• For clients and potential clients—how this transaction will bring value to them.
• For the wider business community—a chance to emphasize how attractive the company has become to an acquirer and how the reorganized entity will be better able to serve its customers.

If you are a business owner interested in learning more about these matters, we are happy to discuss any of the above in greater detail.

Contact:

Larry Barnett
[email protected]

Robert (“Reg”) Gipson
[email protected]

Brian Hoye
[email protected]

Main Tel. No.: (310) 556-4660
Website: www.ghplaw.com