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The First Step of Selling Your Closely-Held Business

ByStephen Albert, Last Modified
Apr 26, 2019
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> Business Basics

After years of running your business, you've decided to sell. Maybe the "next generation" doesn't want to take over the business, or you've decided to retire or start a new business; maybe you just feel the time is right.

If you've never sold a business before, you're probably wondering what you need to do to get from "I’ve decided to sell" to "congratulations on the closing." Putting together the right team should be your first step.

Your best chance of having a smooth and successful transaction is to put the right team together, which will consist of an accountant, a lawyer, selected key employees and in all likelihood, an investment banker. Yes, the outside members of the team are an added expense, but it will be money well spent. Let's take them in order.

An accountant

Of course, you already have one.  He knows you, and your business. He's done your taxes, and helped you keep the business's books and records. He may very well be one of your trusted advisers. It goes without saying that he is going to be involved in the sale of your business. But you need to ask yourself whether he has experience with mergers and acquisitions. If the answer is "no," then you should consider retaining an accountant with "M&A" experience.

The buyer is going to have an accountant with that experience, and your accountant has to be able to "talk the talk," and deal with issues relating to taxes, financials and results of operations as they come up in the course of the transaction. If you are in doubt as to whether your accountant can do the job, sit down with him and have a serious conversation. If you determine that he can, great. If not, then you and he together should determine what additional accounting help you need to retain.

A lawyer

Here too, you probably already have one, but the same analysis that we used above regarding your accountant applies here as well.  If your lawyer does not have M&A experience, he will have to learn on the job, and that is not in your best interests. Issues will come up in the course of negotiating the deal documents and in the due diligence process (more about that later), and your lawyer needs to be familiar with those issues so he can deal with them appropriately. Do not underestimate the potential ill effects on the deal if the buyer and its counsel become frustrated by having to work with a lawyer who is a novice in the field of M&A.

In one sale transaction that I was brought in to substitute for the seller’s lawyer, the buyer had become so frustrated with the lawyer that they refused to proceed with the transaction unless the seller retained a lawyer with M&A experience. This is probably a good time to point out that you may need more than one lawyer, because you may need lawyers with a particular expertise. Does your business potentially have environmental problems? If so, you'll probably need an environmental lawyer. Intellectual property issues? You'll need an "IP" lawyer. Without a doubt you will need a lawyer to negotiate the deal documents, oversee due diligence and manage the deal process so you get to a closing.

Key employees

Your accountant, your lawyer and your investment banker are your outside team members. You're also going to need one or more trusted employees to join the team. Unless you have co-owners who can fill this role, you'll need one or more of your employees to help respond to the buyer's due diligence investigation (in many transactions this person is the company's CFO). The "due diligence investigation" is the process by which the buyer and its team investigate your business to establish its assets, liabilities, problems and prospects. Depending on the nature and size of your business, this can be a major undertaking.

They will look at your financials, books and records, contracts, legal issues, litigations and a host of other matters. One or more of your people are going to have to help in responding to these due diligence requests. Keep in mind, you will not want word of the potential sale to leak prematurely to your employees, customers and suppliers, so you'll want to think carefully about who to add to the team; in addition to being able to help, they have to be people who you can trust to be discrete.  

An investment banker

Some deals get done without an investment banker on the selling side. Yours may be one of them, and if it is, you will save investment banking fees. But ask yourself the following questions:

  • Do you know the value of your company to a potential buyer, or will you need help in valuing the business and coming up with the purchase price?
  • Do you have a buyer lined up, or will you need help in finding a buyer?
  • Do you need to maintain the anonymity of your company in the course of finding a potential buyer?
  • Are you, your accountant, or your lawyer going to negotiate the business terms of the deal and the business issues that will inevitably arise during the course of the transaction, or will you want someone else to take the lead in that negotiating?  

The right investment banker adds real value in all four areas. 

When selling your business, it's important to put a good team together. If you start by adding an account, lawyer, key employees and an investment banker, you'll be starting in the right place.

Stephen Albert
Stephen Albert
See Stephen Albert's Profile
I am a Cornell Law graduate, corporate lawyer and trusted advisor whom my clients turn to for counseling on legal and business issues. My extensive experience includes representing private and public companies, well-established businesses and start-ups, and individuals. I have particular expertise in mergers and acquisitions, both on the buying and selling side. I have also represented clients in joint ventures; reorganizations; financing transactions; and the full range of corporate agreements, including limited liability company, stockholder, employment, distribution, services, and license agreements. You can reach me at salbert@wilkauslander.com.
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