Questions and answers to the four biggest issues facing selling shareholders:
- What is the value of my business?
- How long does it take to sell a business?
- What are representations and warranties?
- Do I really want to sell my business?
Value is the #1 concern of selling shareholders, and most business owners do not have a good feel for the value of their own company. It is critical that a reasonable market value be placed on a company before the business becomes available for sale. Otherwise, the business owner exposes his company, employees, financial records, etc...to the marketplace with a low probability of actually closing a deal. We strongly urge business owners to seek professional help in valuing their company prior to marketing the business.
Each transaction is different, but the average timetable is five (5) months. The first 60-90 days typically involve finding and qualifying the right buyer, touring the facilities, studying the financial statements, and generally understanding the business. The remaining weeks of due diligence are spent with lawyers, accountants, and bankers documenting the transaction. Complex lending requirements and environmental audits and violations can cause significant delays in selling a business.
Many business owners think that when they sell their business, they can walk away from all obligations of their former company. This just does not happen.
Today, a business owner must face up to the obligations and contingent liabilities of his company while he owns the company and document these issues for the new owner. Some of these issues include accounts receivable quality, E.P.A. compliance, I.R.S. compliance, and product liability coverage.
The general theme of representations and warranties is that the buyer is responsible for the actions of the company after the closing, and the seller is responsible for the actions of the company prior to the closing. We encourage both buyer and seller to retain skilled attorneys to help them navigate these legal issues.
All business owners wrestle with this major decision. Much of the decision is based on business value, terms of the deal, who the buyer is, personal and family desires, how long is the transition period, etc...
However, if all the above issues are met satisfactorily, will the owner actually sell? Each business owner must address this issue and qualify himself as a seller. Placing a business on the market and then retracting it can be detrimental to the company.
Above all, honestly qualify yourself as a seller before you plan to sell the business!
Each business owner should establish and periodically update his goals for his company and his exit from the company. This type of planning will alleviate much of the stress and anxiety of selling a business and will improve the probabilities of selling at the right time, to the right buyer, and on the most favorable terms.