How to Do Due Diligence Before a Company Sale
When a company is about to be sold, it is more than worth taking the time to make sure you do it right. It is rare in life that the stakes are as high as when someone buys or sells a company. In the largest tech acquisition in history, Facebook paid $19 billion to acquire WhatsApp!
Although most company sales do not involve stakes that are quite that high, it is still vital to do your due diligence as a sale approaches. Some people wonder if taking the time to do their due diligence is truly necessary, but there are decades of business experience that show the importance of following this business practice.
So what is due diligence all about, and what do you need to do before finalizing a company sale? Read on to learn all about the most important steps to focus on as a company sale approaches!
What Is Due Diligence?
Many buyers and sellers alike dread the due diligence process that proceeds a business sale. Doing your due diligence is notorious for being tedious and at times it can even feel pointless.
The process itself does not fascinate many people. However, the tedium can get even worse when you realize that doing your due diligence is not supposed to affect any part of the sale. By the time you are arranging to do your due diligence, everyone is already agreed on the intended outcome of the process.
If everything goes well, nothing will change about the sale as the buyer gets the last few necessary details about the company they want to buy.
The Importance of Following Due Diligence Guide Tips
On the other hand, there is always some chance that a vital piece of information will transform the nature of the sale process. That is why doing your due diligence before a company sale is a little bit like doing your taxes.
Almost nobody enjoys it, but there are overwhelmingly good reasons to take the time to do so, anyway. The important thing is to figure out how to do so with efficiency and as little stress as possible.
So what does the due diligence process consist of? The due diligence process consists of the seller providing the buyer with the tiny details that make up a company.
The buyer needs to confirm that everything is in order and that there are no surprises before they seal the deal. In practice, that means that going through the due diligence process consists of providing detailed documentation and descriptions of every relevant aspect of the business.
In some cases, merely providing the buyer with all of this information displays enough competence that the buyer may not review every scrap of data they receive. However, the buyer can only have that kind of trust because of the possibility that they will scrutinize everything about the company they are considering buying.
That means it is important to be thorough and provide the buyer with anything that might have any bearing on the sale.
Follow Due Diligence Tips With Financial Information
Perhaps the most important information to prepare for the buyer is everything related to the financials of the company. This will include things like revenue for as much of the history of the company as possible to provide.
The buyer will need more than the total revenue or net revenue numbers, though. Make sure to provide as much relevant data as possible. This can include total revenue along with total costs.
You should also specify what kind of accounting process you are using to calculate revenue. The buyer will also need all other information contained in monthly financial statements.
In the ideal case, you will have all of this information on a single platform. However, if necessary, provide the buyer with all relevant financial information even if it is scattered across a variety of platforms and documents.
The buyer will probably want to figure out what kind of customer retention your company has achieved in the past. Any other information you can provide relevant to this dynamic will therefore also be helpful.
Make sure to include information about the customers behind every source of revenue. The numbers associated with company transactions alone may not be enough.
Provide Clear Information About Human Resources
Buyers buy companies with the idea that they can improve them in some way. In many cases, buyers think that they may be able to round out deficiencies in company talent. For that reason, it is important to provide them with all the information they need to assess their ability to do so.
That includes a company census that lists every employee, including past employees. You will also need to provide information regarding the salaries, benefits, and start and end dates of each employee.
Provide a company employee organization chart. If you want to be helpful, you can highlight any areas where a potential employee or company leader is missing.
Gather Relevant Information About Products
The buyer needs to have access to all relevant information about whatever product or service your company provides. They need to have enough information that they could recreate your product or service from scratch if they wanted to do so.
Not only that, but they need to know how to market your product and price it. Make sure that they know everything about how you provide your product or service and how you present it to potential customers.
The best due diligence advice emphasizes doing more than necessary if you can. Taking the time to thoroughly follow due diligence tips can help a company sale go as smoothly as possible.
Due Diligence Before a Company Sale
As a company sale comes up, it is always essential to take the time to do your due diligence. The more experience people have with company sales, the more they appreciate the value of this established business practice. Doing your due diligence is an investment that will more than pay for itself in the future.
To learn more about how to do your due diligence before a company sale, reach out and get in touch with us here!
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Selling a Business Means You Should Expect the Unexpected
No one ever said selling a business was predictable. However, the truth of the matter is that every sale is different. Even the reasons behind a business owner deciding to sell his or her business vary tremendously. If you are getting ready to sell, it’s important to be aware of the various aspects that could catch you off-guard. If you are prepared for the unexpected, you’ll be mentally ready for the sales process, which often does not go as planned. Even the smoothest and most streamlined sales encounter a few road bumps along the way.
Price Considerations
When it comes to the price structure for a potential sale, many business owners have numbers in their minds that do not meet with reality. As a result, a potential offer could be far less than what they expected, and this causes conflict and delays. Your brokerage professional will prepare you with a thorough valuation so you can have a clear idea of the fair market price of your business. Be sure to ask any questions that you might have so that you feel fully informed when it comes to prices.
Confidentiality
Throughout the sales process, confidentiality must be carefully guarded. Otherwise, this too can interfere with a sale. Your business broker or M&A advisor will have effective strategies to help maintain the highest levels of confidentiality. Even with the best safeguards in place, there is a small chance that a rumor could begin to circulate and word could get out to your employees, customers or supplies. In the case of this incident, it’s important to have a contingency plan in place to quell the rumors.
Your Stockholders
Oftentimes, business owners of privately owned companies forget that their minority stockholders have rights too. You will not be able to sell your business without dealing with all parties involved. When you get a “fairness opinion,” it can go a long way to convince your shareholders of the best price and terms. Even if your shareholders are members of your family, they will have to be successfully dealt with before the sale goes through.
Expect to Allocate Time
You may have hired an experienced business broker or M&A advisor, but you should still be prepared to spend some time dealing with the sale of your business. You’ll be expected to do everything from prepare documents to meet with prospective buyers. This fact that selling will take up your time is particularly true if you haven’t begun making preparations years in advance. That’s why we advise clients to start working with us early on.
You’ll want to make sure that despite your need to focus on elements pertaining to the sale of your business, it is necessary to keep your business running smoothly. Otherwise, any signs of weakness could interfere with your potential sale and your efforts could backfire. This issue just stresses the importance of preparing to sell years in advance.
Through the sales process you must still run your company as well as ever. You’ll want to make sure things are progressing nicely, even if you don’t plan to own the company in the near future. Obviously, your buyer will want things to look reliable and any dips can trigger a red flag.
Copyright: Business Brokerage Press, Inc.
The post Selling a Business Means You Should Expect the Unexpected appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
Own a Restaurant? 6 Signs You Should Sell Your Business
An estimated 80% of restaurants fail within the first five years of business. Even fantastic restaurants struggle to keep their doors open, and their owners have to sell.
On occassion, restaurant owners who are turning a profit can feel the need to sell due to the stress of the job. Is it time for you to sell your business?
We’re here to talk about the signs that you’re ready to make a change and sell your restaurant. Read on to learn more.
1. You’re Feeling Stagnant
There will always be periods of stagnancy (whether real or percieved) when you’re running a business of any kind, and restaurants are no exception. Stagnancy doesn’t always mean that it’s time to consider selling, but prolonged stagnancy might.
This stalemate doesn’t only refer to business growth (or lack thereof), it can also be personal. You may feel like you’re no longer growing as a business owner or that your restaurant, even if it’s successful, isn’t putting you on a path toward the success you’re after.
It’s possible that you can fix this stagnancy, but if you’ve already tried to no avail, listing your restaurant for sale might be the best answer.
2. You Want to Pursue Other Ventures
This ties in with stagnancy, but it can also just be boredom or even ambition. If you’re feeling motivated to make a serious change, it could be time to sell a restaurant.
So how do you know if this applies to you?
You might be feeling an urge to try something new, even if it’s still within the field of hospitality or food service. You’re ready to try out different types of restaurants, start your own catering company, or even start working for yourself by becoming a private chef.
You may be interested in trying a new career path altogether. Maybe you’ve had dreams of becoming a tattoo artist, going to law school, or owning a different type of business.
It’s difficult to balance business ownership (especially restaurant ownership) with other large goals. There’s nothing wrong with selling a company when you know that your heart is yearning for something new and different.
3. You’re Losing Money
This is a huge sign that you’re ready to sell your business. As we mentioned before, restaurants are difficult to run, and many of them fail within their first few years. There’s no shame in realizing that your business isn’t, and may never be, as profitable as you’d like it to be.
Restaurants have tight margins, and between paying your team, making the place look nice, paying for ingredients, and paying your rent, it’s more than possible that you won’t turn a profit unless you’re very lucky and serve great food. Luck is a huge factor.
Selling your business while you’re ahead, or at least not too far behind, maybe the best thing for you.
Take a look at your monthly expenses and profits. Before you sell, you can see if you can make any changes to improve your revenue, especially if you’re motivated to keep your restaurant.
Sometimes, however, it’s best to cut your losses and start over with another venture.
4. You Want a Better Work/Life Balance
Having a good work/life balance is crucial for your mental health, but unfortunately, many business owners aren’t able to do that. They start to experience work burnout which can eventually lead to depression and anxiety.
So what are the signs of work burnout?
People who are experiencing burnout tend to struggle with motivation. Even if they love their work, they no longer have the will to show up at the restaurant every day because they’re so worn down.
They may struggle with frequent fatigue. Work burnout can cause insomnia and oversleeping alike.
People who are burnt out are often more irritable and moody. They may start to lash out because they’re struggling to control their emotions.
Even without burnout, people who own restaurants work long hours and may not get to spend as much time as they’d like with their friends and family members. If you have a family with young children, this is an even bigger problem.
It’s okay to step back from being a business owner because you’re tired of it.
5. The Risk No Longer Seems Worthwhile
Unless your restaurant is the best of the best, you’re running a risky business. There is always the potential for failure, and this is sure to be anxiety-inducing.
For many people, the risk is worth it. They’re excited by the challenge.
For others, they’d rather take a step back and fall into a more passive role. They’re ready for a steady income and a lower-stress environment. Which category do you fit into?
6. You’re Reading This Article
If you’ve been looking up reasons to sell your business, it’s likely that it’s already been on your mind for a while. While no one should jump right into selling their restaurant, if you’ve been thinking about it consistently, that seems like a good enough reason.
Reading this is a sign that you’re ready to move on to something new.
Is It Time to Sell Your Business?
Making the decision to sell your business is tough. You’ve poured your heart and soul into your restaurant, but it’s good to know when it’s time to let go.
If you’ve made the decision to sell your business in St. Louis, or even if you’re still thinking about it, we want to talk to you! At Fusion, we can go over your options and walk you through the process. Book a consultation with us today.
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7 Common Mistakes to Avoid When Selling a Small Business
Each year in the United States, entrepreneurs start over 600,000 new businesses. Unfortunately, not all of these companies reach the heights their founders intended.
Investing in effective business management tactics is an important component of running a successful business that all entrepreneurs should prioritize.
Not everyone knows how to sell a small business. We’ve developed a quick guide full of business selling tips that explains all of the essential things to consider. Let’s get started with what you need to know about selling a small business.
1. Inaccurately Representing Your Business
This is one of the most common mistakes small business owners make when putting their company up for sale. Undervaluing (or overvaluing) your business can immediately turn off potential buyers, so it’s important to be realistic about what your business is worth.
You may also develop a reputation for being dishonest, which will make it even harder to sell your business down the road.
2. Not Having a Solid Exit Strategy
When you’re ready to sell your small business, you need to have a clear idea of what you want to do next. Do you want to retire? Start a new business? Travel the world?
Whatever your plans are, you need to communicate them to potential buyers so they know what to expect. Having a solid exit strategy will also help you negotiate a better sale price for your business.
3. Not Preparing Your Financials
One of the first things potential buyers will want to see is your financial information. If you’re not prepared, it will be difficult to get a good price for your business.
Make sure you have your books in order and can provide potential buyers with accurate information about your revenue, expenses, and profit margins.
4. Failing to Negotiate
Many small business owners are afraid to negotiate when selling their business, but it’s important to remember that you are in control of the sale. Don’t be afraid to ask for what you want — you may be surprised at how much you can get!
5. Not Understanding the Tax Implications
Selling a small business can have major tax implications, so it’s important to understand the laws before you finalize any deal. Speak with a tax advisor to make sure you are taking advantage of all the tax breaks available to you and that you are not paying more taxes than you need to. It’s also important to remember that failing to pay your taxes can come with legal penalties.
So, even if you’re not planning on selling your business anytime soon, it’s still a good idea to stay up-to-date on the tax laws.
6. Not Having a Lawyer
When you’re ready to sell your small business, you need to have a lawyer on your side.
A lawyer can help you navigate the legal aspects of the sale, including drafting a sales agreement and ensuring that all the necessary paperwork is in order. Having a lawyer can also help you protect your interests if there are any disagreements during the sale process.
7. Not Working With the Right Buyer
Just because someone offers to buy your small business doesn’t mean they are the right buyer. It’s important to take your time and find a buyer who is a good fit for your company. They should have the resources to properly run your business and be able to meet your expectations for the sale.
Otherwise, you may end up regretting the sale down the road.
How Do I Find the Best Buyer For My Business?
Consider working with a professional. A broker can help you find the right buyer for your business and negotiate a sale price that is fair for both parties. They will also be able to handle all the paperwork and legal aspects of the sale so you can focus on running your business.
You can also talk to your lawyer or accountant. They may know of potential buyers who would be interested in your business. You can also post an ad online or in your local newspaper.
Just make sure you include all the important details about your business, such as its size, location, and type of business. You should also include your asking price. It’s also a good idea to work with a business broker.
What Red Flags Should I Watch Out For?
As you might guess, one of the biggest red flags you need to keep an eye out for is buyers who are trying to lowball you. If someone offers you an unreasonably low price for your business, walk away. It’s also a good idea to be wary of buyers who want to pay in installments or with a promissory note. These types of deals can be very risky and often end up costing the seller more money in the long run.
Another red flag to watch out for is buyers who are reluctant to put anything in writing. If a buyer is unwilling to sign a sales agreement or other paperwork, it’s a good sign that they are not serious about buying your business. Don’t waste your time with these types of buyers — move on to someone who is more serious about the purchase.
Finally, be wary of buyers who want to rush into a deal. A legitimate buyer will understand that you need time to think about their offer and consult with your advisors. If a buyer is pressuring you to make a decision right away, it’s a good sign that they are not looking out for your best interests.
Selling a Small Business Doesn’t Have to Be Complicated
Selling a small business may seem difficult, but it’s much easier than you might expect. Make sure that you consider the above information so you can avoid obstacles you may have encountered.
Want to learn more about what we have to offer? Feel free to get in touch with us today and see how we can help.
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What You Need to Know About Partnership Agreements
There have been countless instances when someone has gone into business with a relative or close friend and made the mistake of skipping a formal agreement. No matter how good a friend may be, you will always want to get the terms of the partnership in writing. A partnership agreement is a vitally important document that is designed to protect all parties. It will reduce the possibility for disagreements or misunderstandings down the line. When you make sure you have everything documented legally, it will greatly serve you and your partner(s).
Building Your Partnership Agreement
Your partnership agreement should first and foremost address the general rules of the partnership. This means it should cover who owns what, and how you will handle profits and losses. It should cover the basics of issues that may seem obvious, such as what are each partner’s roles and duties. And it should also address the details pertaining to resolving small potential problems that you may never expect to actually arise.
Financial Issues
A good part of your partnership agreement should address issues related to money. As you can imagine, misunderstandings about earnings can quickly become huge disagreements if the details are not plainly stated in writing. On a very practical level, you’ll want your document to cover what percentage of earnings both you and your partner will receive. You will even want to go into detail about how money is distributed. What if money is required to keep the business operational and thriving? You’ll want to cover the details of who will contribute any necessary funds and how this will be handled.
Other Decisions
Another decision you’ll want to make now will cover the nature of decisions themselves. For example, how will you make business decisions? Is it a vote, and if so, how does that vote work? You can also include other situations that could arise, such as what happens in the instance of the unfortunate death of one of the owners? What happens if you decide to bring in an additional partner or partners?
Getting Assistance with Your Legal Documents
While it might seem possible to create your partnership agreement on your own, the best thing you can do is hire a competent professional to help you. That way you’ll know that your partnership agreement is written in the most accurate way possible.
When you have this document established, you can proceed with your partnership with confidence that any potential problems down the line are addressed. It may take some extra time and consideration now, but in the long run, you’ll be able to run your business smoothly and more efficiently. The fact of the matter is that if you address everything now in a partnership agreement, it will benefit your business for years to come.
Copyright: Business Brokerage Press, Inc.
The post What You Need to Know About Partnership Agreements appeared first on Deal Studio – Automate, accelerate and elevate your deal making.
