At times business owners think the sale process begins when a buyer makes an offer.
In reality, some of the most important work can happen well before that point.
If selling your company is a possibility over the next few years, even if no decision has been made, taking a few practical steps now can make a future transaction easier and may put you in a stronger negotiating position.
Buyers Will Look Under the Hood
A purchaser will usually conduct extensive due diligence before completing an acquisition.
That process may include reviewing customer and supplier contracts, employment arrangements, financial statements, ownership records, leases, intellectual property, litigation, regulatory matters and other aspects of the business.
Issues that seem minor during ordinary operations can become significant when a transaction is underway. An important contract may be unsigned. A change-of-control provision may require consent. Key employees may have outdated agreements. Intellectual property may have been developed without clear ownership documentation.
Finding those issues after an offer has been signed can create delays and give a buyer additional negotiating leverage. Finding them a year earlier often means they can simply be fixed.
Make Sure the Corporate House Is in Order
For long-established private businesses, corporate records sometimes reflect years of growth, reorganizations and informal decisions.
Before beginning a sale process, owners should consider whether share ownership is clearly documented, corporate records are current and any historical arrangements among shareholders have been properly addressed.
This can be particularly important for family-owned companies or businesses with multiple shareholders.
A buyer wants confidence that the seller owns exactly what it says it owns.
Think About What You Actually Want to Sell
Preparation is also about more than correcting paperwork.
An owner should consider what a successful transaction would look like.
Does the operating company own real estate that the owner might prefer to retain? Are there separate business divisions that could have different buyers? Does the owner want to retire immediately, remain involved for a transition period or retain an ownership interest?
These decisions can affect tax planning, transaction structure and the universe of potential purchasers.
They are much easier to evaluate before a buyer has imposed a timetable.
Reduce Dependence on the Owner
Many successful private businesses depend heavily on their founder.
That may be one of the company’s strengths while it is being built, but it can create risk for a purchaser. A company with a strong management team, documented processes and durable customer relationships that do not depend exclusively on one individual may be easier for a buyer to operate after closing.
Building that independence takes time, which is another reason preparation should begin early.
Give Yourself Options
Preparing a business for sale does not mean committing to selling it.
It means putting the owner in a position to respond effectively when an opportunity arises.
A well-prepared owner may be able to negotiate with more than one potential buyer, evaluate different transaction structures and make decisions based on long-term objectives rather than deal pressure.
The best time to address many transaction issues is when there is no transaction yet.
For business owners who believe a sale may be part of their future, early legal, tax and financial planning can help turn that possibility into a much more manageable process when the right opportunity arrives.
If you’re planning for a potential sale, connect with Pitblado Law for tailored guidance. Our team can help you evaluate your options and navigate the negotiation and transaction process. For a confidential discussion, please contact:
Partner
204.956.3572
Note: This article is of a general nature only and is not presented as a comprehensive review of the law or as being exhaustive of all possible legal rights or remedies. This article is not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice applicable to their own circumstances. We do not undertake any obligation to update this article to reflect changes in law that may occur in the future.