We meet with a lot of customers each year who are prepared to go to the next stage of their entrepreneurial experience and sell their closely held firm. Here are nine items to think about for a successful transaction whether you are considering an exit plan or taking that next step:
Structure of the Transaction
You sell both tangible and intangible assets during an asset sale, but not the assumed debts and obligations. Assets and liabilities are nonetheless transferred in an ownership interest transaction even though the buyer is buying a stake in the company that is the owner of the transferred assets and liabilities. Every circumstance is different, so think about what will help you achieve your objectives.
Operational Strengths and Weaknesses
The majority of purchasers want to be certain that the company is being handled by competent people and that the necessary systems and infrastructure are in place. The buyer will frequently want to confirm that the accounting and human resources departments are running well and that there is sufficient staff in place. For instance, can the business close its accounts on schedule each month, quarter, and year? If not, this can be a sign that the accounting division of the organization has structural flaws.
Due Diligence Process
This is frequently an undervalued and ignored aspect of a selling deal. The team responsible for the buyer’s due diligence will thoroughly examine the company’s financial records to assess the quality of earnings and any potential unrecorded liabilities. The seller’s senior executives, accounting team, outside accounting team, and law firm may need to invest a substantial amount of time and energy in this.
Letter of Intent
Prior to the creation of the sales contract, the letter of intent (LOI) contains an overview of the key elements of the transaction. The framework for the contract is the LOI.
Analysis of Net Proceeds
It’s essential to provide a thorough and accurate estimate of how much money an owner will receive after the deal is done before deciding whether to move further. The owner’s expectations and the quantity of money (or other assets) they actually get must line up.
Earn-outs are potential future payments made to the seller in the event that the business meets specific financial targets after the closure. Because the performance standards might not be reached and the earn-out payments might not be made, sellers should make sure the closing amounts are enough.
Most sellers concentrate on how a transaction would affect their federal taxes, but state tax implications should also be considered. A formal dissolution notification should be submitted with the state where the business was formed if the transaction is an asset sale, and withdrawal notices should be filed with states where the entity is registered as a foreign entity. Make careful you follow state filing requirements and tax withholding restrictions.
Tax Saving Techniques
There are a number of tactics that may be used to postpone, reduce, or even eliminate the gain upon sale. Planning is essential since these tactics work best when implemented before the sale.
Having the Right Business Broker
The selling of a private company requires a number of processes to be successful. We advise all business owners to engage and hire seasoned transaction consultants before starting any discussions about selling their company.