PREPARE EARLY TO SELL YOUR BUSINESS
PHOTOGRAPHY BY JAMES GUSTIN
PHOTOGRAPHY BY JAMES GUSTIN
Amid the daily challenges of running and growing your business, preparing to sell it may feel like the last thing you need to worry about. “Even if you’re convinced a sale is years away, business and market conditions or your personal situation can change, sometimes faster than you think,” says Lisa Bertagna, Senior Vice President, Fifth Third Bank Private Bank Chicago.
The better prepared you are to evaluate an offer, the easier it will be to navigate the process and make decisions that are advantageous for you, your family, and your business. Being prepared enables a business owner to be proactive and strategic in their response.
Planning involves multiple factors.
Some key steps include: Assemble an experienced team. Start gathering trusted advisors with a variety of experience and expertise right now. “Middle- market companies should have a solid team of advisors—including bankers, lawyers, accountants, and wealth managers—in place before considering a sale offer,” Bertagna says.
Understand what you need from a sale. Having a clear vision of your next venture will make for an easier transition. An up-to-date company valuation could help you understand how close you are to being able to finance future dreams. “Fifth Third’s investment bankers often help owners understand valuation in the context of various strategic alternatives months and often years ahead of a sale,” says Bertagna.
Consider your estate and charitable goals. Transferring ownership interest to family members, trusts, or other entities before a sale could help you capture allowable valuation discounts and reduce transfer taxes later. If charitable giving is among your goals, your team can help plan for supporting the causes you care about, including donations and creating a charitable trust or foundation.
Assess the impact on your personal finances. You may have some business expenses, such as vehicles, that serve both business and personal purposes. Since these will become personal expenses after the sale, you need comprehensive financial planning prior to a sale.
Key steps when responding to an offer include:
Review your objectives. Consider the long-term goals you established for your post-sale life. Ask yourself whether this opportunity will support those goals.
Protect your information. As you try to learn about the buyer and the offer, be sure to avoid sharing too much information early. A nondisclosure agreement, drafted with your lawyer’s help, could protect confidential information and prevent the buyer from approaching your employees if put in place early.
Do your due diligence. Think about how well you know the prospective buyer and whether they have the financial wherewithal to complete the acquisition.
Prepare for their due diligence. Prospective buyers will want to see that your contracts are in order and that your financial statements follow accounting standards. They will also want to know about your liabilities for legal issues or taxes.
Carefully negotiate the letter of intent (LOI). A lawyer who specializes in M&A can help ensure you understand the full implications of the deal. “A transparent LOI that clearly sets out deal terms, including clear consideration language and the parties’ obligations, will leave less to chance and misinterpretation,” Bertagna says.
Foster a competitive process. One reason buyers make unsolicited offers is to increase their chances of buying companies at below-market values. Researching other potential suitors could put you in a more competitive position to attain the best-possible price and outcome.
The goals you hope to achieve from a sale are likely to evolve over time. “The sale process can be complicated and unpredictable it’s so important to be ready to adapt along the way,” Bertagna says.
Fifth Third Bank does not provide tax, accounting or legal advice. Please contact your tax advisor, accountant or attorney for advice pertinent to your personal situation. This commentary is intended for educational purposes only and does not constitute the rendering of investment advice or a specific recommendation on investment activities or trading. Fifth Third Private Bank is a division of Fifth Third Bank, National Association, which is an indirect subsidiary of Fifth Third Bancorp. Banking, investment and insurance products and services are offered through or made available by one or more of Fifth Third Bancorp’s indirect subsidiaries. Investments, investment services, and insurance: Are Not FDIC Insured | Offer No Bank Guarantee | May Lose Value | Are Not Insured By Any Federal Government Agency | Are Not A Deposit Insurance products made available through Fifth Third Insurance Agency, Inc.