When a business owner decides to sell, they must figure out the market price based on annual revenue, earnings and physical assets, including real estate and equipment minus any debt. If intellectual property is connected to the business, such as patents or other partnerships, that value must be figured in as well. A corporate or business attorney can be quite helpful with business valuations for small businesses, and a team of attorneys may be involved if the company is publicly traded. A seller should always seek the best value for the business by showcasing that the company is positioned for future earnings and growth potential. Larger companies often pay more than 50% of current market values in acquisitions.
Organizing the method of sale.
Preparation of a memorandum of sale is necessary to outline the main details a buyer would have interest in, such as:
A company’s history, structure, products and operations;
A business’s valuation with asking price;
List of industry peers and competitors;
Employee and leadership structures;
Current and past financial statements;
Projected revenue and income;
Potential company pitfalls, any attempt to cover these up may be viewed as fraud.
Because any good business has competitors, and unique characteristics, including trademarks and branding, a selling memorandum is a sensitive piece of business information. It makes sense to have interested buyers sign a non-disclosure agreement before allowing them to review private company documents.
Business attorneys have to prepare for three types of buyers in the sale of a business. They include financial buyers, inside buyers and strategic buyers. There are specific documents that will need to be prepared for each type of sale package.
Financial buyers usually offer lower buying prices and tend to be large investors looking to buy businesses, but keep current management in place, using the company as an income generating investment.
Company insiders could be executive employees, family or friends, who have a personal stake invested in the company and would benefit from its continued survival. Unfortunately, most company insiders lack the cash to take over an entire company.
Strategic buyers often offer high buying prices and are usually market competitors who purchase a business for vertical or horizontal integration, to eliminate competition, or take advantage of intellectual property, brands and distribution channels to further their own empire. An attorney’s expertise is needed to draft a tight non-disclosure agreement to insure that a business meeting is not a guise for a “buyer” to steal trade secrets.
Seek legal counsel
An experienced business lawyer can be of great assistance in the valuation of a company crafting documents that will protect it, while encouraging a fair asking price in a competitive market. Contact an experienced professional at Legal Counsel, P.A. for advise and action to get your business on the market.