In order to make the sale of the company successful and to manage the entire sales process at the same time within a manageable period of 1 to 3 years, you should deal in particular with the following topics.
- What role do you take on after the sale of your business?
- What is your perspective on the financial, legal and emotional aspects of selling a business?
- Acquire the basic knowledge of the most important process steps and technical terms for selling a company.
- Define your personal timeline by which your business should be sold.
- Seek expert support for an initial value assessment of the company or a first business valuation.
- Find out about the support an experienced counsellor can provide and define your personal selection criteria for him or her.
Your personal connection and future role in the company
The basic question you should ask yourself is to what extent you want to remain associated with your business after it has been sold.
Basics webinar presented by Nils Koerber
Company sale (M&A) without risk and loss of value
Is it your intention to sell only part of your business? And how large should this share be? Insofar as you wish to continue to hold the reins of the company, this should be at least 50 % of the company’s shares. Or is it your wish to sell 100 % of all the shares of the company but to continue to be employed in the company?
In this context, the question arises as to whether this activity should be focussed on a specialist department or be more generalist in nature. At the same time, you should decide whether you still want to intervene in the company’s activities as an operative decision-maker or only in a consultant-like function.
However, it may also be your wish to withdraw completely from the company.
Weigh this decision carefully based on your personal preferences, but also legal considerations.
Financial, (tax) legal and emotional aspects of selling a business
1. financial aspects
As a first step, you should carefully examine your future financial provision situation and, if applicable, that of your family.
So what financial resources will be available to you in the future to cover your living expenses? What financial resources do you have and what regular payments can you expect in the future? For this purpose, you should draw up as detailed an income and expenditure plan as possible so that you can precisely estimate any gaps in provision and their amount.
This clarification is particularly important in order to assess whether the sale of the business or the business purchase price should represent an essential financial cornerstone of your retirement provision or whether you can focus on other objectives of the sale of the business.
2. legal and fiscal aspects
The sale of a business also entails some decisions about legal and tax aspects.
Make sure you know whether and how the company name of your business can be transferred to the new acquirer. On the one hand, this depends largely on your personal preference and attachment to your company name, but also on its customer loyalty effect. An acquirer will attach particular importance to a company name if it represents strong customer loyalty and branding. Therefore, create personal clarity and the legal requirements for yourself as early as possible in order to be able to transfer the company name if necessary.
Another important decision is the question of location. Can the business remain at its current location? Or would you like to use the property (if you own it) for other purposes in the future? Would you like to sell the property in order to secure your old-age provision? Or would you prefer to rent the property to the new owner and thus generate reliable income in the long term?
At the same time, you should consider the right time for the transfer. This can be an important aspect, especially with regard to reaching specific age limits from a tax point of view. But also with regard to the lead time in order to initiate tax optimisations in good time before the sale.
3. emotional aspects
Selling a business always involves an emotional component that should not be underestimated. After all, you alone or with your family have built up the company over many years. A lot of time, a lot of energy and a lot of heart and soul were invested in the development of the company. Experience has shown that the sale of a company is not easy for many entrepreneurs, even if you yourself play down this fact or do not want to admit to yourself how life-defining this connection really is.
Be aware that you have invested most of your life and energy in the business. Have open discussions with your family in good time about what should happen after the sale of your business. Many entrepreneurs who do not deal with this in time do not know what to do with their time “afterwards”. This can lead to emotional and family strain. Instead, actively use the opportunity to enter a new phase of your life and think intensively about what should become your purpose in life in the future.
Process steps and technical terms
1. process steps
Every company sale is a more or less individual process.
Nevertheless, it also usually follows certain process steps. You should know the basics of these. On the one hand, in order to know a structured procedural sequence of the individual challenges you face and, on the other hand, in order to be able to better estimate the time dimension you need for your company sale.
Below you will find the most important steps of a company sale in chronological order:
- Preparation of company analysis, purchase price calculation, company exposé and teaser
- Conception of the individual sales strategy for the company
- Active search for buyers and/or investors
- Pre-selection of target buyers/investors
- Contacting the selected potential buyers/investors
- Coordination of the information talks and signing of the letter of intent to purchase the company
- Evaluation of prospective buyers and offers with subsequent selection of the final negotiating partner
- Coordination of the company’s risk assessment (due diligence)
- Conducting the purchase contract negotiations
- Contract signing (signing/closing)
2. technical terms
In the context of a company sale, you will inevitably be confronted with many technical terms. Nowadays, these are usually in English. The complete listing of a glossary would certainly go beyond the scope here. However, you will find the most important terms named and briefly described below:
Asset Deal
Purchase of individual assets of a company (e.g. split-up). An investor acquires the assets of the target company. The shares of the target company remain with the seller.
Share Deal
In addition to the asset deal, the share deal is a possible form of company acquisition. In this case, the buyer purchases the shares in the company for sale from the seller. This often also refers to the partial takeover of shares in a company.
Teaser
Anonymised advertisement for the sale of your company with initial approximate details of key company data (industry, region, turnover size, etc.).
Memorandum / Exposé
The memorandum or exposé is a qualitative and quantitative documentation about the company for sale. It usually contains information about the company itself (organisation, value creation, financial data, employees, etc.), the industry environment, the competition and the owner’s reason for selling. The company memorandum is handed over to prospective buyers against the signing of a corresponding confidentiality agreement.
NDA
Abbreviation for Non Disclosure Agreement, refers to a confidentiality agreement between the client and the contractor regarding all written or oral information concerning a project. The contractor undertakes to keep all confidential information brought to his attention strictly confidential, even after the project has been completed. Furthermore, any exceptions to confidentiality, the transferability of rights and obligations as well as contractual penalties are fixed in the contract.
LoI - Letter of intend
Written declaration of intent by a potential buyer to take over the company to be acquired at a certain purchase price and under certain conditions. In this way, the buyer signals - usually after an initial review ? a fundamentally more far-reaching interest in acquiring the target company. The character of this agreement varies between a non-binding letter of intent and a legally binding preliminary agreement, depending on the form, content and wording in the individual case.
Due Diligence
Due diligence is the process of intensive examination of a company’s financial and economic situation and plans by external experts (usually banks, lawyers and auditors). Its aim is to be able to identify all important internal company conditions that could have an influence on future business activity, as well as potential risks. In the run-up to an IPO or a capital increase, due diligence is a prerequisite for the preparation of an issuing prospectus. Examination of the economic, legal and tax circumstances of the specific object of sale by the buyer.
Signing
Signing of the purchase contract. Depending on the structure of the contract, the signing of the contract and the closing, i.e. e.g. the transfer of the shares to the buyer, may not coincide. Closing is usually linked to the fulfilment of certain conditions which are not yet fulfilled at the time of signing the contract.
Closing
The term “closing” refers to the legally binding conclusion of a purchase or sales transaction. Closing” usually involves the purchase agreement, notarisation, payment of the purchase price and entry of the buyer as legal successor.
Personal timeline for the sale of the business
The personal timeline you estimate for the sale of your business usually depends closely on your personal age and your goals. Generally speaking, a distinction should be made between an ad hoc sale, i.e. a sale that takes place as soon as possible, and a more perspective sale.
Ad hoc sale
If you have already made the decision to sell your company within a reasonable period of time, then there is nothing to stop you from immediately starting to prepare for the sale. However, you should bear the following in mind: Due to the complexity of a company sale, experience shows that the process can take an average of 18 months. In principle, the sale of a company can also take place much more quickly. However, due to the complexity, a minimum of 6-8 months cannot be undercut. On the other hand, in case of doubt, a company sale can also drag on for a significantly longer period of time. This depends not only on factors that you can determine yourself, but also on external factors over which you have no influence. These include, for example, the current market situation in your industry, the decisiveness of the acquirer, the quality of external advisors - to name just a few examples.
Prospective sale
If instead you are one of those entrepreneurs who think about selling your business very early (e.g. with a lead time of 5 years), then this will give you a very good starting point to sell your business successfully and at a reasonable price. Use the time to optimise your company, especially from a business management point of view, to detach private payment flows from the company, to build up a deputy or even a 2nd management level if necessary or to optimise the sale of your company from a tax point of view.
Value assessment of your company
Assessing the realistic value of a business should not be underestimated for the success of the sale of the business. Entrepreneurs often tend not to value their company in line with the market. This is usually due to the fact that they have a close attachment and thus a high appreciation of their company. As a rule, however, a buyer will not have this close attachment, but will assess the company solely from a business perspective. Therefore, in the later sales process and especially in the negotiations on the purchase price, it is important to know a realistic purchase price of the company and to be able to substantiate it on the basis of an appropriate company valuation. This usually objectifies the discussion about the amount of the purchase price and thus creates a sound basis for reaching a reasonable agreement in the end.
In this context, it should also be borne in mind that the value of a company does not only depend on the actual figures, i.e. the result that the company generates. These values, usually described as hard or quantitative factors, represent the basis of the company’s value, but do not determine it solely.
So-called soft factors or qualitative factors should not be neglected. These include, for example, the company’s unique selling proposition, the market and competitive situation, employee loyalty, innovative strength, etc.
Choice of adviser
The sale of a business is a complex and usually unique process for each entrepreneur. Accordingly, most entrepreneurs have neither the sufficient process experience nor the necessary professional expertise. From this point of view, it is advisable to consider the involvement of a qualified advisor. Of course, the success of the sale of the business also stands and falls with the qualification and commitment of the advisor.
To help you find the right advisor from the multitude of offers, the following is a list of the criteria you should take to heart when choosing an advisor:
- There should be a free initial consultation be offered! However, the assumption of travel expenses is common.
- The Support should be carried out by the commissioned broker personal and from A-Z can be ensured for the entire transaction process.
- Are sufficient experience due to corporate transactions that have already been carried out?
- Has the business broker Experience in the purchase price segmentin which the purchase price of your company will also lie?
- Does the consultant have relevant Business, legal and tax expertise?
- Will the Qualification of potential buyers checked by the broker?
- Will the Confidentiality of your company data and your sales intentions?
- The Amount and modalities of the fee should from the outset transparent be set out. It is customary that the relevant portion of the fee is only due upon the successful conclusion of a purchase contract and is in the single-digit percentage range of the purchase price achieved (2% to 6% are customary). A monthly basic fee (fixed or effort-related) is customary; however, the hourly effort should be proven by the broker on a monthly basis.
- For the Acceptance of a consultancy contract should give you a reasonable time be granted in the follow-up to the free initial consultation.
- And what is especially IMPORTANT is: Is the human chemistry between you and the consultant? After all, you may be working together for several months!
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TIPS for further reading:
How targeted balance sheet adjustments can increase the value of a company!
What increases the value of the company?
Selling a business - 5 measures to make your business fit for sale
