Starting early to ensure Clients maximize value and get the best outcomes
An Accountant, based in Boston, USA, has many Clients who own businesses and are getting ready for retirement.
Some years ago, he helped one complete a successful trade sale. Since then, 'transaction advisory' has become an important part of his business.
Here's an overview and some reflections on how Accountants help Clients sell their businesses.
Selling a Business: An Overview (and how Accountants can help)
Step 1: Confirm Commitment to Sell
Rationale: Owners need to be 100% intent on selling their business Selling a business takes considerable focus. A half-hearted approach is a distraction which puts a business at risk Joint owners should agree on their goals and gain the consent of significant stakeholders (spouses, key employees, big customers etc.)
Quote: "Thinking back, we wasted time with Clients who liked the idea of selling... but hadn't thought through the implications. Now we insist on their commitment".
Step 2: Set Clear Goals
Rationale: Define realistic financial (wealth creation, income) and lifestyle (role in the business, free time, lock-in terms etc.) goals Recognize that few transactions deliver EVERYTHING the seller wants Set time frames for achievement of goals.
Quote: "Financial goals are important but a critical question is what the seller will do post-sale. They also need a plan for that".
Step 3: Valuation
Rationale: Get a sense of the valuation EARLY Valuation methods vary by business and industry. Consider financial performance, comparative valuations and industry trends A 'good' valuation can easily be defended in sales negotiations If the value is not attractive to the seller, put the sale on hold and focus on increasing business value.
Quote: "Sellers inflate the value... so address this early. Halt the process if expectations are way off the map. And work on value creation, not value realization".
Step 4: Financial Data
Rationale: Prepare accurate financial statements (for at least 3 years): P&L, Balance Sheets, Tax Returns and statements specific to the business Prepare supporting documents: business plans, projections, licenses, permits, intellectual property, loan agreements, leases, customer and supplier contracts and related documents.
Quote: "The goal is to give sellers and buyers a clear sense of business performance, value, risks and opportunities".
Step 5: Market the Business
Rationale: In some cases, the buyer is easy to identify, e.g. a financial investor, competitor, customer, family member etc. Otherwise, market through directories, online platforms, social media, networking events, intermediaries (lawyers, bankers, brokers) etc.
Quote: "We encourage sellers to define their 'ideal buyer' so we can get really focused when marketing the business".
Step 6: Screen Candidates
Rationale: Eliminate unqualified candidates (e.g. because their goals don't align with those of the Seller, they can't fund the deal etc.) For qualified buyers, enter confidentiality agreements and share data.
Quote: "We have forms which help us screen candidates, especially their ability to fund any deal".
Step 7: Enter Discussions and Negotiate Key Terms
Rationale: Successful negotiation means: Referring back to the goals (valuation, lifestyle) to keep on track Compromising, as the Buyer's perspectives / goals become clearer A win-win outcome: 'Lopsided' deals 'come back to bite' later Clear communications to avoid confusion or misunderstandings Using experts to opine on complex issues (e.g. financial, legal, etc.) Being ready to walk away especially if the stated goals will not be met Finalizing and documenting key deal terms ("Heads of Agreement").
Quote: "We remind Clients that 'we are judged by the deals we DON'T do as well as the deals we DO'. Be willing to walk away from a negotiation... you'll probably be smarter for the experience".
Step 8: Due Diligence
Rationale: Set up a digital data room for the buyer and their advisors Be prepared for an intense examination on all information.
Quote: "DD can be laborious but we try to make it easy for the buyer. That builds trust and goodwill".
Step 9: Close the Deal
Rationale: Get advice on terms and conditions, including structural options to manage finances, minimize tax, and ensure a smooth transition Document the deal, using experienced attorneys Sign contracts to transfer ownership and secure payment.
Quote: "Many of our Clients will sell a business only ONCE in their lives so best to have all the necessary expertise readily available".
Step 10: Post Deal Transition
Rationale: Start fulfilling all post deal commitments to enable a smooth transition Give special attention to the key risk areas, e.g. employee or customer retention A deal where one party is dissatisfied can put the entire deal at risk The seller should manage the personal consequences of the deal, e.g. capital gains tax, retirement planning, investing profits, tax planning and setting new personal financial goals.
Quote: "Closing the deal is usually not the end of the story, but a new beginning. This is when hard work starts to ensure the deal is a success. And we play an important role helping Clients navigate the post-deal realities".
Do you have Clients getting ready to sell their business? And are you positioned to help them?
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
