Ready to Sell? Part 2

We recently attended an event, Maximizing the Value of Your Business and Getting Ready for a Sale, hosted by M&T Bank. We took away some valuable lessons, which we will be sharing with you in a three-part series. The first explained the importance of legal structure and involving experts to help you decide. This second post focuses how to structure your company so when you do decide you’re ready to sell, many of the big choices have already been made.

It’s all about planning for the end of your business. The end will look different depending on the circumstances—tragedy, an interested buyer seeking you out, or maybe it is just time to close the doors. The end may be planned or unplanned. No matter what the circumstances may be, you should put your plans in writing now, not unlike your personal will or estate planning. Not only will this make it easier, but hopefully it will help avoid controversy when the time comes.  

Here are some key steps to take now:

• Document and explain how you calculate the value of the company. This should also include information on how people who are vested in the company can get out and monetize their interest. If they want out tomorrow, when can they expect their check? In 30 days or two years?
• Create room and develop key employees. You want to make sure that your business can operate without you, and that there are other team members that will help build value. Be sure to incentivize them to create and achieve the goals of your organization through bonuses, equity, and ownership (phantom or otherwise).
• Protect your assets and products. Use Confidentiality, Non-Compete, and other restrictions with vendors, employees, and customers. If someone is purchasing your business, they want to make sure what they are buying is protected from theft.
• Create a board of advisors. This should be a circle of people you trust and should include a mix of people in or near your industry that have experience with business sales, and are familiar with your company, your goals, and motivations. It also can’t hurt to include an attorney or tax adviser.  The group should meet regularly to help you collect ideas, develop new ones, and provide support and guidance during the sale of the company.

Setting these items up now doesn’t mean they can’t or won’t be revisited. As your company grows and changes, continue to revisit these plans. For example, when you reach a new milestone, take on new owners, or purchase another company is a good time for you to revisit these items, and maybe a few more.

Again, many thanks to the attorneys at Stein Sperling for sharing their expertise in the seminar.