When it comes to selling a business, research shows that many owners have a limited understanding of the process and often make fundamental mistakes that can seriously undermine the final sale price. Selling a business has become a complex transaction that is subject to many legal and financial conditions. Many businesses change hands every month in a planned, orderly way with owners realizing excellent value. Others are sold in a less rigorous do-it-yourself fashion that often leads to poor results which are compounded by frustrating delays and ongoing uncertainty. Keystone Business Advisors offer an approach to keep things moving forward in an orderly manner to ensure that sensitive information is protected, uncertainty is avoided and the best price is achieved.
1. Opinion of Value
Experience has shown that there are a large percentage of business owners who do not know what their business is worth, or how to go about establishing its true value. Some owners have a figure in mind of what their business is worth, often over inflated because of their emotional attachment. Others undervalue their business because they do not know the various valuation methodologies and which is most appropriate for their specific business. There are several established methods of determining the value of a business. In most cases, KeyStone uses a combination of these to determine the Most Probable Selling Price. Most of the approaches we use are market-based approaches. Not only can we provide our opinion of what your business may sell for, but we can show you exactly how we got there.
2. Confidential Business Review
A professionally prepared information memorandum is a strong marketing tool in the sale of your business. The Confidential Business Review is a comprehensive document prepared by Keystone Business Advisors which discusses the value drivers of your business. It is used to help buyers understand the history of the business, operational overview, roles and responsibilities of the management team and/or key employees, customer and market overview, supplier relationships, summary financial information and sustainability of earnings. We believe the methodology and thoroughness our Intermediaries take in preparing this key document provides us with a competitive advantage. We have one time to make a good first impression of your business, and this document is it. Very importantly, this document allows interested buyers to move forward at a much quicker pace with less time and effort required from the seller.
3. Marketing Program
The KeyStone Marketing Program is designed to reach the maximum number of potential buyers without comprising your identity. After preparing the Confidential Business Review, your KeyStone M&A Broker will identify and compile a list of potential buyers from our database. Over 30% of businesses that are sold by Keystone Business Advisors are buyers that we already have established a relationship with.
The marketing program includes advertising in various online sources, some of which are geared towards the end buyer while others attract business intermediaries which represent buyers looking for a particular type business. Keystone Business Advisors is also part of a regional and national network of intermediaries which greatly increases the exposure your business will receive. Identifying the motivations of different types of buyers is important part of the KeyStone program. Generally, third party buyers fall into one of three categories;
- Financial Buyers – people looking for a company they intend to run as owner/managers.
- Strategic Buyers – companies in your industry (or a similar industry) looking to expand via acquisition. Strategic buyers often realize cost savings (consolidating operation into one location, eliminating headcount) or increased revenue (selling their products to your existing customers). KeyStone aggressively targets strategic buyers because synergies often create increased value for the buyer – and this can translate into an increased selling price.
- Private Investors, Family Funds & Private Equity Funds – is a source of investment capital from high net work individuals and institutions for the purpose of investing and acquiring equity ownership in companies.
4. Qualifying Genuine Buyers
Acting as an independent third party, Keystone Business Advisors is able to maintain confidentiality until the buyer has been identified and screened to assess their financial and operational capability as well as help to identify that their intentions are genuine. The initial screening process is designed to confirm that the buyer is in a position to complete the purchase, and is motivated to do so. After that, KeyStone will provide the buyer with the Confidential Business Review, follow up with a call or meeting to provide an overview of the business and answer any initial high-level questions the buyer may have.
5. Introductory Meetings
After a buyer has reviewed the Confidential Business Review and expressed interest in pursuing to the next step, Keystone Business Advisors will coordinate an introductory meeting between buyer and seller. Depending on the results of the meeting, a buyer may have additional questions and will usually require further information and/or documents. Selected information is supplied ensuring that any sensitive material is withheld until an offer has been made and progressed under the terms of the due diligence. Securing a buyer’s trust and confidence is critical to achieving a successful sale. Difficult questions will be asked and you must be prepared with honest, plausible answers.
6. Offer & Negotiations
Provided the buyer has been supplied with all the basic information they require and are interested in pursuing an acquisition of your business, Keystone will manage the negotiations price, terms and deal point negotiations for the transaction. Our goal is to maximize the after-tax selling price and terms for your business. We have been successful in this regard by fully understanding what is important for both the buyer and seller so that we structure a deal has a high probability of closing without the seller leaving money on the table.
For our smaller clients, we will typically prepare the purchase agreement using standard purchase and sale forms provided by one of our associations. For our larger transactions or any transaction where a buyer retains an attorney, Keystone Business Advisors will work with the buyer and their professional advisors in preparing a Sale and Purchase Agreement detailing the price, terms and conditions of the offer. In some situations, a buyer will prefer to present a Letter of Intent (LOI) to Purchase with commitments to enter into a Purchase Agreement later depending on the outcome of due diligence and/or conditions specified in the LOI. Keystone Business Advisors plays an essential role in negotiating the sale on your behalf and can often recommend win-win solutions that help keep the deal moving forward and increasing the chances for a successful close.
7. Due Diligence
The Letter of Intent or Purchase Agreement will include a due diligence clause, giving the buyer a specified period of time to investigate and confirm that the information supplied is accurate. Many business owners assume that the deal is done once the parties have entered into contract. In reality, the most common reason why a transaction does not go through is a result of a seller not being properly prepared for due diligence. The two most common deal killers are time and surprises. We have found that preparing our clients in what to expect in advance along with making sure there are no hidden surprises which are not disclosed prior a buyer making an offer is essential for completing a transaction with the same price and terms which were negotiated in the contract.
Due diligence is also seller’s time, with KeyStone’s assistance, to verify the buyer’s creditworthiness, qualifications to run the business, and verification of funds to cover the down payment and working capital. The due diligence process generally takes between 2 weeks to 2 months depending on the size and complexity of the business. A buyer can terminate an agreement for a number of reasons during the due diligence process, but this is less likely to occur if the Confidential Business Review is explicit and accurate.
8. Time & Responsibility Schedule
As you can imagine, there are a tremendous amount of tasks that both a buyer and seller must do in order to facilitate a smooth transition and to minimize disruption after the closing. Keystone utilizes a Time & Responsibility schedule to manage all the tasks that the buyer, seller, M&A broker, escrow and other key advisors are required to do to keep the process moving forward on time and in an orderly manner. We have found this to add tremendous value for our clients in terms of efficiency, improved communication and maintaining the target timeframe.
9. Bulk Sale Escrow
In certain states such as California, Keystone Business Advisors will adhere to the local bulk sales laws by working with an escrow company that specializes in bulk sale transfers. This helps ensure that the business is being delivered free and clear from all liens and the transaction remains in compliance with all local and federal government entities. Escrow will also create the final bill of sale and draft the promissory note and security agreement if seller financing is involved. The escrow process typically takes four weeks and can either be accomplished after in or parallel with the due diligence process.
10. Closing & Transfer
Once all conditions in the purchase agreement and escrow instructions have been satisfied, it will be declared unconditional. Keystone Business Advisors will work to finalize the details required for the closing to take place on a specified date. We also assist in a transition plan with the objective of minimizing disruption and uncertainty for the employees and customers of the business. After closing, the seller will train the buyer for an agreed period of time to facilitate a smooth transition. Your KeyStone M&A Broker can provide you with a list of things that typically need to be done pre and post closing to help ensure a smooth transition.