The process to sell a business moves along at a reasonably fast pace. It is wise to make certain the business is ready to sell before you announce to the potential buyers your business is actually up for sale.
Buyer Research. You need to determine which type of buyer will pay the highest price and why. You need to research possible buyers to determine if they have the financial resources to buy your company and what is their history towards negotiating strategy and completing deals.
Accounting Review. Accountants for the buyer typically perform a due diligence review of the accounting records. You need to have your accountant perform the due diligence of accounting against your records to determine the nature of any errors and to fix any information system weaknesses.
Business Valuation Pricing Analysis. Obtain a business valuation pricing analysis and look at the balance sheet, cash flow and income statement adjustments then review supporting information for each adjustment. Are there any adjustments that are hard to prove or that a buyer may classify as the seller whining about reality? Are there changes to business operations such as reducing personal expenses (sports season tickets) charged to marketing that would make the expense item easier to justify? Often the effectiveness of certain advertising expenses needs to be challenged and the expenditure reduced. I usually desire a one year time horizon to see the affect on sales. Some customer/suppliers may leave on transfer of business to certain buyers because they want to spread their business around and they already have existing arrangements in place. They do not want a greater reliance on one customer/supplier. This needs to be assessed in a pricing analysis.
Service Contracts. Most businesses have numerous service contracts such as: telephone services, mail services, photocopy, shredding of data, computer software, customized computer software, cell phones, sales agent agreements, etc. It is important to make a list of the contracts, notice period, due dates, renewal dates, renewal terms, and other relevant terms such as whether the contracts are transferrable on the change of control of the business. Based on our experience, it is most likely that when a business is about to be sold the company should be careful to avoid signing long term service contracts or making changes to month-to-month contracts that create new long-term contracts.
Employee Agreements. Many businesses have special contracts for sales and other employees. Often there is an employee handbook with other key terms in it and job descriptions. It is often prudent to have a labour lawyer review the existing sales agreements, employee handbooks, job descriptions, and bonus formulas to see if it meets current standards especially related to non-solicitation clauses and not taking away company or customer data. The next step is to get a signed copy on file for all necessary employees for all agreements. Then have an independent party audit all agreements for all employees to ensure they are properly signed and in place.
Income Tax Review. It is normal to review what audits/assessments are in progress. A review should be completed of any aggressive accounting that buyers may challenge the tax deductibility of.
Due Diligence Checklists. There are many due diligence and business review checklists circulating in the marketplace. It is most useful to understand the business and industry operations first and then modify the checklist to what is/is not relevant and what else needs to be included.The use of an experienced mergers and acquisitions professional who can use their prior deal experience is often more useful and beneficial than textbook knowledge.
Bruce R. Horsley, HBA, CA, CBV is the founder of Horsley & Associates Inc. located at 25 Main Street West, Suite 515 in Hamilton. For more information, please call 905.528.4446, email firstname.lastname@example.org or visit www.hacbv.com