Creating a to-do list for preparing your company before selling it can help you create an action plan before putting it on the market. When the time comes to sell your company, you have two options. You can begin the process immediately, putting it up for sale in its current state, which may mean lowering its value to potential buyers in the negotiation stage. Or, you can delay its sale until you have invested enough time to improve the way in which potential buyers see your company. This choice depends on personal motivations as well as the other objectives of the business owner.
If you choose the second option, here are the four basic steps to follow before the sale:
1.Obtain a valuation.
Surely you have an approximate value for your company in your head, but is it reliable? Getting help from professionals who are experts in this area can provide you with a figure that is objective and realistic for your company in the current market. A value analyst can also aid you in determining what the strengths and weaknesses of your company are and, thus, come up with strategies to increase its value.
2.Reduce dependency on the owner.
You believe that your business cannot function without you and your employees. By reducing this dependency, you increase its value for the buyer. In order to achieve this, it is important to plan the sale with time and patience to find the right people to put your trust in and delegate your responsibilities.
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3.While strengthening your company to present it to buyers, keep your sale plans as private as possible.
Share your intentions to sell with only key personnel and external consultants only when necessary or when information is accompanied by a confidentiality agreement. Always emphasize the importance of maintaining the privacy of your sale intentions. If news that you are planning to sell your company arises, you run the risk of creating uncertainly among your employees, clients, and suppliers. This could decrease the company’s value, just when you need it to increase.
4.Develop a memorandum of sale.
Your company should be described in an easy and concise manner. When you have a memorandum of sale (also known as information memorandum) for your company, you increase the trust of the buyer and reduce diligence problems, making the way for a simpler and faster sale. This memorandum of sale should include the history of the company, industry information, a description of the company’s operations, its strengths, market strategy, and prediction for the future. The financial position and financial and operating tendencies could also be included.
At ONEtoONE, we understand that, in respect to a corporate operation, the valuation is a negotiation tool. The creation of a value report is a fundamental part of a successful negotiation to be able to maximize the price with arguments backed with concrete and accurate numbers.
This article was written by Enrique Quemada, President of ONEtoONE Corporate Finance.