Successful company sale confirmed by signature

Selling a compa­ny: 10 best tips on stock exchan­ges, proce­du­re & purcha­se price

Selling a compa­ny is one of the most emotio­nal and nerve-wrack­ing proces­ses in the life of an entre­pre­neur. After all, a compa­ny is not only to be placed in capable hands, but also to be sold at the right condi­ti­ons become.

In princi­ple, a well-run business model is gladly taken over; it often does not fail becau­se of the interes­ted parties. The big problem is agree­ment between the two parties. The price of a compa­ny is often the most important factor.

The list of condi­ti­ons to be negotia­ted is long. But in the end, disagree­ment on a single point is enough to cause the contract to fail. In order to support entre­pre­neurs in their sale, the follo­wing are Typical dealb­rea­k­ers and helpful tips descri­bed for a successful negotiation.

Go direct­ly to the KERN Compa­ny Exchange

You don’t have much time to read? Here are the tips at a glance:

KERN Process Graphic Company Sale - 10 Best Tips

3 typical dealb­rea­k­ers in the sale of a company

1. Legal uncer­tain­ty
No two sales of a compa­ny are alike, but one thing always remains the same: buyers shy away from uncer­tain­ty. If legal diffi­cul­ties arise during the review of a compa­ny, for examp­le Legal­ly ineffec­ti­ve trans­fer transac­tions in the company’s histo­ry, the sales process quick­ly stalls or is aborted directly.

2. Purcha­se price and terms of payment
The purcha­se price is often the most important decis­i­on criter­ion for or against the sale of a compa­ny. However, not only the amount is decisi­ve, the payment terms are also relevant. For whether the purcha­se price is paid in one sum, in instal­ments or partly perfor­mance-based should not be neglected.

3. Liabi­li­ty issues
No matter how convin­ced a buyer is about a compa­ny, liabi­li­ty issues can turn a lucra­ti­ve deal into a fiasco. A good examp­le from practi­ce is the Bayer-Monsan­to deal. At the latest with this promi­nent M&A case, liabi­li­ty issues have once again moved to the forefront of the risk review. There­fo­re, the prospect of future liabi­li­ties or risks has a major influence on whether and at what price a purcha­se offer is made for a company.

Compa­ny sale procedure

As with any commer­cial transac­tion, the sale of a compa­ny is prece­ded by an exami­na­ti­on by the poten­ti­al buyer. Depen­ding on the buyer and the compa­ny, this so-called Due Diligence last several weeks and is usual­ly carri­ed out by exter­nal auditors, legal experts and manage­ment consul­tants carri­ed out. However, this exami­na­ti­on is only possi­ble if the seller grants access to inter­nal documents. There­fo­re, a confi­den­tia­li­ty agree­ment is signed before the due diligence.

In a Letter of Intent the seller and buyer commu­ni­ca­te their positi­ons. If deal break­ers can be identi­fied from this document at an early stage, negotia­ti­ons can be termi­na­ted before the start of a DD due diligence. This not only saves time and money, but can also result in a Disclo­sure of the most important compa­ny secrets be preven­ted. This is especi­al­ly important when the poten­ti­al buyer is a competitor.

Procedure of a company sale in brief

Quick To-Do List for Sellers

You want to get a quick overview of the most important to-dos before the sale? Under the follo­wing link we have compi­led a detail­ed guide on the topic for you Compa­ny sale check­list compi­led. Here are the 5 most important points in a quick overview:

CORE List of 5 important to-dos for selling a company

1 Choose the optimal time
When selling a compa­ny, timing is every­thing. You want to make sure you sell when the business is at its peak value and interest is high. There are a few things to consider when deter­mi­ning the right time to sell, such as the current state of the business, the general econo­mic situa­ti­on and the competition.

2 Prepa­re the sale of the business thorough­ly
It is never too early to start prepa­ring for succes­si­on. The earlier you start, the more time you have to get every­thing in place and ensure a smooth sales process. If you start prepa­ring for the sale early, you will also have more leeway to get the best possi­ble price for your business.

3 Carry out a profes­sio­nal business valua­ti­on
If you use the Calcu­la­te compa­ny value profes­sio­nal­ly let, this can help you deter­mi­ne the value of your business and give you a clear idea of what sums are reali­stic to sell. It can also help you deter­mi­ne the best way to struc­tu­re your business to maximi­se its value.

4 Get advice on tax and legal issues
The best way to get advice on tax and legal issues is to consult a tax advisor or accoun­tant. These profes­sio­nals can help you under­stand the tax impli­ca­ti­ons of your business activi­ties, avoid mista­kes, and advise you on tax compliance.

5 Plan hando­ver early
It is important to plan the hando­ver and integra­ti­on of staff early on to ensure a smooth transi­ti­on after the sale. This can be done by commu­ni­ca­ting with outgo­ing and incoming staff to ensure that everyo­ne is on the same page.

Click here to go direct­ly to the compa­ny sale checklist

Power of infor­mal networks

Over many years, M&A specia­lists such as KERN have built up a resili­ent network with a large number of (regio­nal) banks, savings banks, associa­ti­ons, lawyers, tax advisors, guilds and chambers. They know thousands of poten­ti­al buyers and their exact search profiles.

In most cases, they are aware of the finan­cial possi­bi­li­ties of strate­gic inves­tors, indivi­du­al candi­da­tes and finan­cial inves­tors. In other words, this network offers compa­ny sellers the great oppor­tu­ni­ty to address a large number of poten­ti­al buyers quick­ly, speci­fi­cal­ly and anony­mously. Often without even having presen­ted the compa­ny anony­mously in an exchange.

At Kern Invest you will find soluti­ons for your compa­ny sale

10 tips for selling your company

In additi­on to the dealb­rea­k­ers mentio­ned above, we would like to provi­de you with further useful assis­tance for the Compa­ny sale give. It is not just about avoiding pitfalls. The follo­wing tips will help the business owner to Compa­ny sale proce­du­re successful­ly and to return the compa­ny to the market with a good feeling. Compa­ny succes­sor to hand over.

1 Willing­ness to compro­mi­se on the terms of payment of the purcha­se price

The payment terms are an important part of the Compa­ny purcha­se agree­ment. The seller would like to have immedia­te payment of the full purcha­se amount, while the buyer would like as many perfor­mance-based contract compon­ents as possi­ble. It is advisa­ble for the seller of a compa­ny to be prepared to compro­mi­se on this point. Becau­se a Payment in instal­ments can be worthwhile for both sides. A distinc­tion must be made here as to whether it is a Seller loan or a so-called Earn Out variant (orien­ted towards future success).

The buyer does not pay the full purcha­se price until the compa­ny has also achie­ved the joint­ly agreed target figures in subse­quent years. The seller can demand interest on the outstan­ding amount in the case of a seller’s loan. However, a notary should be consul­ted for a compa­ny contract with such payment terms and a bank guaran­tee or other colla­te­ral should not be waived.

2 Letter of Intent

A compa­ny sale only succeeds if both parties can agree on a contract in the end. But the path to this goal leads through long, possi­bly tough negotia­ti­ons. However, in many cases a detail­ed LoI can find out before the negotia­ti­ons whether an agree­ment is at all likely. There­fo­re, much empha­sis should be placed on the Letter of Intent (Memoran­dum of Under­stan­ding) be laid.

3 Negotia­te non-compe­te or consul­tant position

From Compa­ny purcha­se agree­ment the further future in the compe­ti­ti­ve market of this compa­ny may also depend on it. There­fo­re, conside­ra­ti­on should be given to whether a Non-compe­ti­ti­on clause is to be integra­ted. The mere risk that the seller could start a new compe­ti­tor compa­ny may induce the buyer to prevent this possi­bi­li­ty by adding a premi­um to the purcha­se price. Alter­na­tively, the seller can be engaged as a consul­tant in his old compa­ny. This buyer wish is often easy to integrate.

4 Selling compa­nies: The halo effect (collo­qui­al­ly the “first impression”)

In contract negotia­ti­ons it is important to convin­ce the buyer as quick­ly as possi­ble of all the positi­ve charac­te­ristics and the oppor­tu­ni­ties of the compa­ny. The halo effect can help to shape the sales strategy. This states that the special empha­sis on only one important, positi­ve charac­te­ristic leads to the other side recog­nis­ing other positi­ve quali­ties more quickly.

Inciden­tal­ly, this effect has been successful­ly appli­ed, among others, by Barack Obama in his first election campaign. There­fo­re, the seller of a compa­ny should parti­cu­lar­ly empha­sise the core compe­tence of his compa­ny, e.g. the above-avera­ge quali­ty of his products, services or the USP (unique selling propo­si­ti­on). If the buyer is convin­ced of the special features, he will also value other competences.

Use KERN Halo Effect to sell your company

5 Profes­sio­nal appearance of the entrepreneur

At the Business valua­ti­on not only play the positi­ve and negati­ve charac­te­ristics of the compa­ny a role. Unpro­fes­sio­nal behaviour on the part of the entre­pre­neur can raise doubts about the infor­ma­ti­on provi­ded. After all, how the entre­pre­neur behaves is how he conducts business. Relia­ble infor­ma­ti­on and quick answers to the buyer’s questi­ons do not play an unimportant role.

6 Choose the right market­places for compa­ny sales

In recent years, a large number of market­places have estab­lished themsel­ves along­side the two large compa­ny market­places Nexxt Change and the German Unter­neh­mer­bör­se. These are often small and focused on one region or one indus­try. As a result, the small number of visitors only leads to a manageable number of enqui­ries from interes­ted parties or even outda­ted purcha­se offers are presented.

Specia­lists like KERN know which M&A platforms are promi­sing. They invest in expen­si­ve access to high-quali­ty and non-public platforms in order to discreet­ly present their clients’ sales offers to a large number of vetted prospec­ti­ve buyers.

On the KERN Compa­ny Exchan­ge you will find a large number of verified adver­ti­se­ments from buyers and sellers.

6 Change-of-Power Clauses in Contracts

The attrac­ti­ve­ness of a compa­ny also lies in the attrac­ti­ve­ness of its contracts and contrac­tu­al partners. An entre­pre­neur who alrea­dy makes suppli­er or rental contracts more flexi­ble before selling the compa­ny can increase the sales price. Change-of-power clauses (or change-of-control clauses) come into force when control of a compa­ny changes. Among other things, special notice periods can be agreed for custo­mers and suppli­ers. Such clauses facili­ta­te integra­ti­on into the supply chain of the acqui­ring compa­ny and thus reduce the buyer’s risk. However, there is also a great danger associa­ted with such clauses: Custo­mers and suppli­ers who, from the buyer’s point of view, should remain on board can then termi­na­te at any time. As always, there are the famous two sides to a coin.

7 Under­stan­ding the role of banks

A compa­ny sale is usual­ly finan­ced not only from own funds. There­fo­re, the compa­ny transac­tion depends not only on the buyer’s assess­ments, but also on the buyer’s bank. The bank recei­ves most of the infor­ma­ti­on from the Due Diligence. However, the finan­cing bank can obtain infor­ma­ti­on from the house bank via the so-called bank information. 

In this case, the house bank arran­ges a Impres­si­on about the entre­pre­neur and the compa­ny. There­fo­re, problems known to the house bank should defini­te­ly be commu­ni­ca­ted to the buyers in advan­ce. If the bank infor­ma­ti­on turns out worse than expec­ted, this will have a negati­ve impact on the purcha­se price. It is advisa­ble for the buyer to also have concre­te discus­sions with the house bank for the Compa­ny acqui­si­ti­on to lead.

8 Reduce risk with maximum liabi­li­ty and limita­ti­on periods

A major conten­tious issue in any corpo­ra­te transac­tion is liabi­li­ty. Since the legal rules are not parti­cu­lar­ly attrac­ti­ve to either the buyer or the seller, indivi­du­al regula­ti­ons are made in the compa­ny purcha­se agree­ment. The buyer does not want to be surpri­sed by unexpec­ted liabi­li­ties and risks and there­fo­re tries to make a Shifting most of the liabi­li­ty onto the seller. For the seller, on the other hand, it makes sense to include two clauses in the contract.

On the one hand, a maximum liabi­li­ty amount that is in propor­ti­on to the purcha­se price. On the other hand, a liabi­li­ty risk can be excluded with an indivi­du­al limita­ti­on period if the buyer only learns of the payment obliga­ti­on after this period. Even though this may have a Negati­ve influence on the purcha­se price has, these regula­ti­ons protect so that more of the purcha­se price remains in the long term.

You can find every­thing on the subject of taxes when selling a compa­ny, compa­ny succes­si­on and hando­ver in these articles:

9 Vendor due diligence can increase the sales price

A Vendor Due Diligence (relevant in larger transac­tions and can be used well in the bidding process) is carri­ed out by the seller in order to find out about weakne­s­ses and possi­ble problems before the negotia­ti­on and to be able to remedy them. The results of the vendor due diligence are also presen­ted to the buyer before the negotia­ti­on. Even though this is associa­ted with time or finan­cial effort, a Vendor Due Diligence to boost the sales process at several points. For one thing, all the risks from the seller’s liabi­li­ty alrea­dy discus­sed in advan­ce no longer apply.

Further­mo­re, a stale­ma­te or break­down in negotia­ti­ons can be preven­ted if serious legal problems, such as an ineffec­ti­ve trans­fer of the GmbH in the past, have alrea­dy been settled before the client conducts his due diligence. Further­mo­re, vendor due diligence can increase the purcha­se price, becau­se buyers calcu­la­te a ?uncer­tain­ty discount? on the purcha­se price offered. The better the buyer can assess the compa­ny, the smaller this discount will be.

10 Profes­sio­nal advice

Compa­ny takeovers are part of the business strategy for large compa­nies. They there­fo­re have their own experts or alrea­dy have business relati­onships with exter­nal experts. M&A advisorstax advisors and lawyers. For many medium-sized entre­pre­neurs, the sale of a compa­ny is a one-off transac­tion. There­fo­re, they always have doubts about being “bambooz­led” by the large experi­en­ced compa­ny with all its experts. And there is often not enough time in their every­day lives to be able to compre­hen­si­ve­ly comple­te such a complex project with so many issues in additi­on to their daily tasks.

However, many of these entre­pre­neurs shy away from the path to their own Compa­ny sale consul­ting. Self-made entre­pre­neurs often tend to be I’ll do it myself’ menta­li­tythat can stand in their way during a corpo­ra­te transac­tion. This is becau­se exter­nal advisors can use their experi­ence not only to prevent a compa­ny from being sold below value, but also to keep legal risks within bounds.

In unfami­li­ar waters, the captain of a ship often trusts a pilot experi­en­ced in this sea area. As such a compa­n­ion, we also see oursel­ves as KERN ? The follow-up specia­lists: From the multi­tu­de of our projects, we know where dange­rous cliffs and shoals of an Compa­ny succes­si­on lie. In additi­on, we are famili­ar with the questi­ons of a wide varie­ty of prospec­ti­ve buyers and know what is important for the successful handling of a compa­ny sale.

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3 common mista­kes when selling a company

A successful compa­ny sale requi­res a strate­gic approach and the avoid­ance of important mistakes.

Mista­ke 1: The secre­cy trap: Hiding the succes­si­on plans when selling the company

Often entre­pre­neurs fear that their custo­mers, suppli­ers and employees will jump ship when they learn of the company’s inten­ti­ons to sell. However, this fear is usual­ly based on a lack of commu­ni­ca­ti­on. It is important to reali­se that the age of the entre­pre­neur and the obvious need for a succes­si­on plan make it obvious to all parties invol­ved. Early, trans­pa­rent commu­ni­ca­ti­on can counter­act this and create trust. Nevert­hel­ess, each case must be asses­sed individually.

Mista­ke 2: Undere­sti­mat­ing the importance of employees during the sale of the company

The invol­vement of employees is of decisi­ve importance for the success of the compa­ny sale. The seller of a compa­ny should not undere­sti­ma­te the fact that buyers can quick­ly regard certain employees as important and relevant for the conti­nua­tion of the compa­ny and there­fo­re even consider the reten­ti­on of these poten­ti­als in the compa­ny as a value factor. In this case, too, confi­den­ti­al invol­vement in advan­ce makes sense. Frequent­ly, buyers even wish to be actively invol­ved and even offer the senior staff a share in the compa­ny with the takeover.

Mista­ke 3: Undere­sti­mat­ing the role of employees in the company’s value

Entre­pre­neurs often tend to equate the value of their compa­ny with their subjec­ti­ve assess­ment of their own life’s work and to regard the employees as less relevant. This mista­ke is dange­rous, however, as the company’s value depends signi­fi­cant­ly on its employees. A shorta­ge of skilled workers can lead to a loss of compa­ny value. An appro­pria­te appre­cia­ti­on of the employees is there­fo­re essen­ti­al to maintain the compa­ny value during the sale of the compa­ny. For senior employees, for examp­le, a bonus for a successful sale can also be a motivation.

Compa­ny sale conclusion

At first glance, numbers seem to be the driving factor for selling a compa­ny. However, sellers undere­sti­ma­te that buyers are afraid of buying a pig in a poke. There­fo­re, soft factors also play an important role. A Compe­tent appearance, good commu­ni­ca­ti­on and relia­ble exchan­ge of a lot of useful infor­ma­ti­on can increase the buyer’s sense of security.

In this way, the purcha­se price can also be increased through trust. For uncer­tain sellers it is worth consul­ting exter­nal advisors. The entre­pre­neur can decide accor­ding to his or her needs whether these advisors should only provi­de advice on the sale of the compa­ny or whether they should inter­ve­ne in the negotia­ti­ons themselves.