How to prepare a business for sale

If your attorney is ever conducting a jury trial, or doesn’t know what disclosure schedules are, they will likely be completely out-matched by the buyer’s counsel, who will be experts at M&A.

Your existing CPA may be able to adequately support you through an M&A transaction, but they should have some experience with M&A, and either they should be familiar with the tax aspects of M&A transactions or you should bring in a specialist in tax. The potential consequences of messing something up on the tax side are significant.

2. Get independent guidance on valuation

It’s easy to look up comparables or do a back of the napkin valuation based on multiples of revenue, EBITDA, or SDE (depending on your industry). It’s also easy to get guidance from your broker. But it’s helpful to sanity check any of these results – any of them can be misleading or inaccurate. If you’re expecting to get 5x SDE, and the most the market will bear is 4x, you may choose not to engage in the hassle of a transaction to begin with.

The benefits of valuation guidance extend beyond the decision to pursue a transaction or not: if you have independent guidance on valuation from a valuation firm or a reliable CPA with valuation expertise, you will be able to respond to offers and to re-trades in an informed fashion.

3. Prepare your diligence

Your broker or attorney should be able to share with you a few template “diligence request lists.” You don’t need to prepare everything on these lists in advance of a transaction, but you can start to group the items by the people internally who will be responsible for responding to them, and you can start to identify holes in your documents. Every thorough diligence process uncovers issues – that’s the entire point of diligence! Starting an internal diligence process beforehand will give you a leg up on the lengthy diligence process post-LOI, and will allow you address any “red flag” issues that might otherwise endanger or delay a transaction.

4. Hunker Down

This may be the most important piece of prep work you can do: a typical M&A process is incredibly grueling for a seller. You’ll be torn between running the business, managing a complex negotiation, overseeing professionals, and responding to legal, operational, and financial diligence requests. And the entire process will take longer than you’re expecting, and will likely include several unexpected delays. Finally, you’ll have the emotional rollercoaster ride of watching someone poke holes in the company you own and care for; you may have a buyer decide they’re not willing to do a deal with you, or change what they’re willing to pay, or just be challenging to work with.

By preparing yourself mentally for a marathon, you will be better able to manage the hurdles that arise, and persevere through to a successful close.