How Each Team Member Contributes to Selling Your Business
In this article we are going to discuss the importance of assembling an effective M&A Advisory Team before you sell your business. This is the first step for a business owner in evaluating and planning for the transition of ownership at some point in the future.
Before we dig into the process of assembling an effective team, let’s look at some alarming statistics that point toward the importance of this effort.
Typically, 80% of a business owner's personal wealth is tied up in their company, making it largely illiquid.
About 50% of all business sales result from unexpected circumstances such as death, divorce, incapacity, negative economic or industry events, or other significant life events.
I think we would all agree that those are some alarming statistics, particularly if you own a business and have not started planning for your exit. Recognizing the need to begin planning is the first step, which then leads to the recognition of identifying key team members. As there are many elements to this “pre-sale process,” ideally, it should begin several years prior to an anticipated sale transaction or transition of ownership.
The learning process and the planning process can be time consuming, as well as requiring some key decisions that can take time to evaluate and then execute.
So, let’s get started.
1. The Business Owner: Steering the Sale of Your Business
The central person on the team – the person who must align financial and lifestyle goals with those of their company. While the amount of money that can be obtained from a sale is important, we have found there are other important objectives that business owners have in considering a sale, such as their transition to a new life of retirement or to a reduced role in the company, the future of the management team and other employees, and the company’s legacy in their industry and in its community. The old axiom is absolutely true for the business owner as they embark on this process – “knowledge is power,” and a well-constructed advisory team will provide the business owner with the knowledge they need to build and execute a plan that works for all involved.
2. The Investment Banker: Strategizing to Sell Your Business
The investment banker is the first advisor the business owner should bring on to the team. They can help the business owner understand what their options are and how to develop and execute a plan to achieve their objectives. An experienced investment banker brings significant value at this point in the discussion, helping the owner assess the current value of the company, understand current M&A market conditions in their industry. They can also help the owner understand their options for selling all or a portion of their business and how those options will impact on the management team. Experienced investment bankers can also be very helpful in evaluating, helping business owners select the other advisors that should be part of the team.
3. The Tax Advisor: Optimizing Finances When You Sell Your Business
As the business owner begins to understand their options and prioritize the steps in the execution plan, the next team member to add is the tax advisor. This is typically a CPA firm who has an existing relationship with the business owner and has most likely been the preparer for both personal and corporate tax returns; more importantly they probably have been very involved in all major tax discussions and decisions. They are the advisors that will be able to tell the owner how much money he will have left after selling the company and paying taxes. They can also help implement strategies that will help the owner minimize taxes if they are brought in early enough.
4. The Financial Advisor: Planning Your Future After You Sell Your Business
Once a business valuation range has been established and the estimated taxes discussed, it is time to bring the financial advisor on to the team. The financial advisor will work with the business owner to help him understand the impact of the sale on their personal financial goals and objectives. The financial advisor can prepare an evaluation of the future earnings from the business owner’s expanded portfolio after the sale, and help their client decide when and if they want to sell. Based on the results of the analysis, the business owner may decide to sell sooner, or they may decide to wait until they can increase the value of the business. In either case, the business owner and their team are continuing to gain knowledge for the benefit of the owner and his pending decision.
5. The Corporate Attorney: Preparing Your Business For Sale
Most business owners have a corporate attorney who is experienced at handling general corporate matters such as contract preparation and review, advice on corporate litigation, company formation and structure, minority owners, and other matters central to the ownership and operation of a company. As the business owner considers entering a transaction, it is important to gain the corporate attorney’s counsel and allow for the resolution of all concerns or issues raised by the attorney. Some examples are - all litigation, as either plaintiff or defendant, should be settled well in advance of the sale; all key contracts should be evaluated under the lens of a possible sale transaction, and any employee claims should be settled and properly documented.
6. The M&A Attorney: Navigating the Legal Aspects of Selling Your Business
We always recommend to our clients they work with an experienced M&A attorney whose practice is principally focused on the purchase and sale of companies. Handling a sale transaction is a very specialized field in the legal profession and an experienced M&A attorney knows which terms and conditions are normal and customary and can efficiently guide the business owner through the legal portion of the sale. The M&A attorney, in working with the corporate attorney, will have important recommendations on a variety of legal and transaction issues that should be considered in advance by the team.
In Closing
This rounds out our discussion on the importance of forming an M&A Advisory Team to assist the business owner in making an informed decision on when and how they will transition ownership in their business, and which approach will help them accomplish their financial goals. An M&A advisory team that has worked together prior to a sale will provide the greatest benefit to the business owner and operate more seamlessly as the sale process moves along. As always, frequent and informative communication is paramount to the success of the team.
About Waypoint Private Capital
We are an investment banking firm that provides lower middle-market clients the quality of
investment banking services typically available only to large companies. Waypoint helps privately-held business owners sell and buy companies, raise equity and debt capital for growth and recapitalization, and plan for a successful exit from their business.
To learn more visit waypointprivatecapital.com or call us at 608.515.3354 or 918.633.2647 and speak with a Waypoint Private Capital expert.
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