10 steps of a well-planned company sale transaction
1. Prepare an action plan
The sale of a company is a multi-stage process, for which you should be thoroughly prepared. A properly developed plan will make it possible to avoid mistakes that may affect the transaction success or the price that you can obtain from the sale.
2. Take care to get a reliable valuation of your business
The key to a profitable sale of a company is, above all, knowledge of its indicative value. This basic information is crucial for successful negotiations with the entity that is considering the purchase. You may choose from several methods of valuation – each of them will help you estimate the amount that can be obtained.
3. Take your time while you are looking for a purchaser
As a rule, the company sale process is time-consuming, and excessive haste generally leads to unnecessary problems. Potential purchasers may think that the sale could be a desperate attempt to save the company offered for acquisition.
4. Choose the legal form of the company you are selling
Consider whether the legal form in which your company is run is optimal in terms of its sale. Take into account that the form of a sole proprietorship will be the major obstacle to its sale. Consider transforming your business activities into a limited liability company so you can sell the shares to the purchaser without too many problems.
5. Make the decision – will you sell all or part of your company?
The transfer of full control over the company’s functioning to the purchaser is not always the best solution. You may decide to sell an organised part of your company or part of the shares in it. However, you should remember that such a form of sale requires particular attention and the extension of negotiations with such points as the exclusion of part of the assets from the transaction, and determination of the principles of corporate governance or conditions for the seller’s exit from the business.
6. You need a tax analysis
The ways of the company sale differ from one another, and the most important divergences concern just the tax law. Ask a consultant for the indication of tax consequences of the decision that you have taken.
7. Keep your intention in secret
Remember that the information about your plan to sell the business is a serious signal for the employees and contractors about upcoming changes. The employees may be afraid of being laid off or of worse working conditions. The contractors may think that maybe the new owner will try to replace them with other entities with which the purchaser has been already cooperating within other businesses or to renegotiate the conditions of agreements concerning the existing cooperation. In each of these cases it is better to maintain secrecy and not to share this information until you consider it as useful.
8. Prepare your company for the sale
Before you decide to sell your company, make sure that it is ready in organisational, financial and legal terms. You should start the preparations long before the commencement of negotiations with a potential purchaser. Make sure, above all, that the business can function in organisational terms despite the change of the owner.
9. Negotiate the transaction conditions
You should be aware of the fact that negotiations concerning the company sale are carried out on many levels. Such issues as the price, prohibition of competition, hiring the employees or payment schedule are of great importance. If you prepare thoroughly to the negotiations, it is highly probable that you will avoid mistakes and obtain the most advantageous conditions.
10. Take care of the payment security
One of the most important issues – if not the most important – is taking care of the security for payment of the price, in particular if it is to be paid in instalments. At the stage of the agreement preparation, it is worth taking care of introducing provisions that will protect the entrepreneur.