John Burnett: How to stay in control of the business sale process

Without a structure plan and a predetermined strategy, owners will soon find themselves dealing with a multitude of issues. Photo / 123RF

COMMENT:

Selling the business could be defined as a once in a lifetime opportunity by the owner in realising the dream of an early retirement, or to spend more time with family or to pursuing the next big opportunity.

Letting go of ownership after having spent a lifetime creating and guiding the success of the enterprise can be an emotional roller coaster and that factor together with an increased demand in personal time and energy, can act as a deterrent towards business owners starting the sale process.

Without a structure plan and a predetermined strategy, owners will soon find themselves dealing with a multitude of issues and an ever-increasing demand for yet more detail from potential buyers and their professional advisors. The financial affairs of the business, its staff, trade suppliers and company clients will come under increased buyer scrutiny.

Confidentiality is a key issue in the selling process. The concern are very real, what happens should staff become aware that the business may be sold or indeed how should the owner react to possible concerns expressed by the company's clients, trade creditors and other associates.

During the initial buyer enquiry stage, a great deal of confidential and indeed vital information on operational and administrative aspects will have been disclosed. That information may or may not have been safeguarded against inappropriate use.

Regardless of how the above scenario plays out many business owners despite spending years planning on how they will spend their retirement, have given little or indeed any thought as to how to initiate the sale process.

In considering a way forward there are a number of proven strategies, which will assist towards achieving a successful business sale including a strategy allowing the business owner, Staying in control of the Business Sale Process.

Is the company properly positioned to achieve a successful sale outcome? Timing is everything, the time to sell is when full potential has not yet been reached. Sell when the enterprise can demonstrate an increasing trend in revenue and cash flow and a management infrastructure in place that can function effectively without direct ownership involvement. Overall the trend will be towards a strong profit performance with a degree of assurance that more of the same is to come.

Ensure as part of the team, professional outside advisors. The seller needs professional support and should include as a minimum, advisors from the legal, financial and brokering services, all of whom are ideally experienced in the sale process.

Advisors can assist in drawing up an agreement keeping post transaction risks to a minimum, the risks to the seller can include, representations and warranties, indemnification, legal and taxation implications.

Structure the transaction to ensure maximum after-tax proceeds. The sellers financial advisors are aware of the financial structures and strategies on how to maximise the after-tax proceeds.

Selling the business could be defined as a once in a lifetime opportunity by the owner. Photo / Bloomberg

Keep the selling process structured and timely, the goodwill of the companies is the value associated with the companies client base, staff expertise, managerial infrastructure, industry profile, key agencies and trade suppliers. A confidential agreement in writing signed by both parties and acknowledged by the parties respective professional advisors can mitigate a breach of confidentiality and a potential loss of value accrued to company goodwill.

A drawn-out affair can derail the opportunity in selling. The longer the events the greater will be the chance of an adverse effect on staff, shareholders, company clients and trade suppliers. Having a structured approach on how to handle buyer enquiry together with confidential contact numbers will simplify matters and avoid a possible early breach of confidentiality.

The management team should be fully focused during the selling process. This is crucial as a downturn in revenue or a perceived lack of staff attention to incoming enquiry, may raise buyer concern. The role of the professional broker is to oversee the sale. The role of management is to keep the business running at its optimal best.

Maintaining deal momentum, is a crucial aspect. Advisors even with the best intentions can become deal fatigued and distracted in dealing with other client demands. An excellent strategy is to ensure minutes of the various meetings between the parties be recorded with timelines as agreed and distributed to all participants. One of the primary roles of the professional broker is to maintain deal momentum and to act as a buffer between the parties and to assist towards keeping sellers emotions in check.

Keeping multiple buyers motivated and competing is a crucial role undertaken by the professional broker. This factor is best served when there is more than one party competing. A profitable enterprise will attract multiple offers however it's a fact that the highest price may not necessarily win. A lower offer coupled with an assurance as regards ongoing employment opportunities to existing staff may well ensure a favourable consideration.

Selling is not without its challenges letting go of an enterprise that has absorbed much of the existing owners time and resources may not be that easy. Despite the best intentions of all parties, an inappropriate word or gesture during a period of intense/sensitive discussions can materially affect the hoped-for outcome.

Therefore, it is important at all times to keep in mind the big picture as to why the process was initially started. A planned approach with a supportive team will ensure success for the business owner ultimate goal in a "Successful Business Ownership Transfer".

- John Burnett, Proprietor: Investor Business Brokers Limited