When it comes to selling your business there are some steps you need to take one of which is gauging the interest of potential buyers or people willing to offer the most for your business. In general buyers can be split into 3 categories which are financial, strategic and ESOP(Employee Stock Ownership Plan). Strategic buyers are usually in the same industry as the seller and are more interested in obtaining other businesses to increase the value of their own business by having access to other products, services, customers, market shares and so on. They may want to make modifications to their newly acquired businesses if the business is bought at a lower cost like removing or integrating different service functions or cutting down the number of employees working a certain department. This should be something that sellers must think about as their decision to sell their business could effect those who work in it so certain terms could be made to avoid these problems such as negotiating for employment protection or other terms that would address the needs of the workers.
Financial buyers are the kind of buyers that look to see how they can invest in a business they feel hasn’t reach their full potential and would offer their financial support and knowledge and then depart to turn a profit depending on the terms. They might choose a specific industry to invest in and when they do prefer those that possess certain qualities such as high barriers to entry, low capital expenditure requirements, strong cash flows and more. Financial buyers finance the businesses they acquire by leveraging it in order to get their target investment returns and so focus more of their time on the earnings before interest, taxes and amortization and depth of management. They can depart from their investments by selling to the company’s management team although measures should be taken to handle any conflicts of interest delicately if said management team is trying to market it to other parties that may be interested. An ESOP is a exit strategy that is a combination of the two where a trust owned by the employees buys shares of the company over a period of time. They are highly complicated however and have lots of restrictions in place.
How to market your the company
Since there are many different ways to market a company there are three different paths a financial adviser would advise business owners to take and while each have their own advantages choosing the one that’s right for your business depends on the scenario.
Extensive auction: Material assets owned by the company are available to be sold to a large number of potential buyers.
Narrow auction: An auction where the company presented to a much smaller group of potential buyers.
High target sales approach: A company is presented to a more selective third party willing to pay a higher price.
The adviser would present a private offering of the materials owned by the company to potential buyers. The aim is to garner the interest of the buyers while at the same time reveal the true value and build confidence on future projects. These materials usually include the companies potential and historical financial results.When presented strategically, succinctly and thoughtfully, these materials can help entice buyers, reveal value and build confidence in projected performance.
Types of sales
There are three forms of transactions that can be influenced by state and federal tax considerations.
Asset sale: A company would sell it’s operations and assets while highlighting the liabilities to a buyer. Important contracts would be looked over to see whether they require permission from third parties involved like suppliers and lenders or if they do not and are transferable. Key agreements usually are restricted by banks and licensing establishments unless they have the consent of the third parties involved.
Equity sale: In this type of sale all the company’s assets remain with the company but the owners called equity holders can influence the control of the business by selling their equity interests. Even though they’re none transferable assets some other parties involved can require their consent as though they were. For tax purposes buyers would much rather go for asset transactions and so that they would not acquire unknown liabilities.
Mergers: Mergers can be compared to equity sales as they have the same results though they don’t require a unanimous consensus between the shareholders that are selling it. The important agreements however again will have to be looked over to see if they require third party permission for any changes.
In the sales process of a company a set of key agreements must take form that would give details to the type of control the buyers will have depending on the transaction. It varies per agreement and depends on the interest of all the parties that are included. The seller must fully comprehend all of the terms and other details fully documented in the agreements so there is no confusion or uncertainties in regards to certain matters like liabilities. This is very important in that in case there is a misleading or incorrect detail written within the article that is taken noticed by the third party they have grounds to demand a refund of their purchase. This means having the agreements thoroughly prepared and have a problem resolution requirement in case of future disputes. Next comes the last part of the selling process which is the closing which again depends on the type of agreement set in place. There are some arrangements that are built as “sign and close” agreements meaning they’re signed and the transactions are closed and the money transferred at the same time but there are things that could come up like delays that can interfere with the closing process. There can be a number of reasons for it namely a list of obligations that each member may wish to complete first but in the event that it occurs a date and time will be scheduled where all parties involved will have had what ever they needed to get done completed and set forth the closing process. This detail in the agreement process can interfere with the time and effort spent in the selling process and so it is to the best interest of all parties involved that they be considerate to each other’s schedules and reach a accord that satisfies each of their interests in regards to closing the sell.