For owners of privately-held companies, the decision to sell their business is often the culmination of decades of hard work and may be one of the most important personal and financial events of a lifetime. While there are alternatives to an outright sale (recapitalization, accommodating an owner’s desire to maintain a financial interest, or the hybrid exit strategy of a sale involving an Employee Stock Ownership Plan), setting clear objectives tends to produce better outcomes. Knowing when to sell and what tax effects it will have often help crystalize those objectives.
In preparing the company, owners should conduct a thorough examination of their corporate operations that will illuminate the areas closely examined by any prospective buyer: financial forecasts and business plans, key contracts, intellectual property, customer lists or any unusual or contingent liabilities. Hiring an advisory team experienced in the sale of businesses will help the owner to set reasonable expectations, guide during the search through possible strategic buyers, financial buyers or a management buyout. The team can also lend insight into how the business should be marketed as this will be highly situational and its course should be carefully plotted.
While progressing through the course of the sale, an owner can be involved in Non-Disclosure Agreements, Letters of Intent, Definitive Agreements and Indemnity obligations, or other agreements depending upon the structure of the sale. The closing conditions and termination of rights should be carefully thought out and specifically defined in these agreements. Post-closing, the sale of a privatelyowned business often represents the end of one chapter and the beginning of another. The quality of the new chapter can depend significantly upon whether thoughtful preparation was undertaken well before the sale process began.