Selling Your Business?

Finding a buyer is very much like dating – it is critical for a business to put its best foot forward, because finding the right match is the only way to ensure a successful venture.Here are five steps business owners can take to make their company more attractive to a potential buyer and maximize the value of their years of hard work. Here are five tips:

1) Prepare professional, compliant financial records
Complete, independently prepared financial records are a critical component of any sale. Potential buyers will typically require financial records to conform to Generally Accepted Accounting Principles (GAAP) to ensure they get the kind of certainty and apples-to-apples comparison they need in order to make a sound decision. It is advisable to include at least three to five years of data.

Without these critical documents, buyers are generally left with three options: delay a sale until the proper records are completed, reduce the purchase price to account for additional risk, or walk away from the deal completely.

2) Get commitments from key employees
Purchasing a business's assets and infrastructure is only one part of the equation; retaining key employees is also a critical component of maintaining a business's success following a sale. If all of the workers quit on the first day under new ownership, the value of the business decreases dramatically, particularly if those workers seek employment with a direct competitor.

Ensuring the most important employees sign a non-compete agreement will go a long way toward moderating these concerns for potential buyers.

3) Maintain key relationships in writing
Just as it is important to keep the best employees on the job following a sale, it is equally essential to ensure contracts are in place to maintain the relationships that helped make your company competitive in the first place. The absence of contracts with important suppliers and vendors can present a serious red flag for potential buyers. A company could incur a significant financial hit if a critical vendor or supplier suddenly severs a crucial business arrangement shortly after the acquisition.

4) Keep excellent corporate records
Shareholder agreements, bylaws and articles of incorporation provide a wealth of information to help potential buyers understand the rights of owners and other information necessary to complete a sale. These documents essentially provide a road map during discussions of a potential acquisition.

Incomplete or missing documents can pose a significant obstacle to a deal. For example, buyers need certainty that the person they are dealing with from the seller team actually has authority to transact on behalf of the seller. 

5) Ensure all intellectual property is protected
Purchasing an existing business also means taking ownership of the patents, copyrights and branding that have been established over years, or even decades of hard work. For example, if an entrepreneur wanted to buy Coca-Cola, they wouldn't just be paying for the recipe for a sugary beverage and some infrastructure. They would be buying a world-famous brand name and all of the intellectual property (i.e., trademarks, copyrights and patents) that come with it. 

Without this legal protection, there is nothing to prevent another entrepreneur from swooping in and copying the same formula that led to the original business's success.

Salvatore J. Bauccio is a member of McNees Wallace & Nurick LLC’s Corporate & Tax and Healthcare Practice groups.