Go for the gold: maybe you've planned it since day one, or maybe you've taken years to decide. now that the time has come to sell your business, find out what you can do to make sure you come out on top

Entrepreneur, Oct, 2004 by David Worrell

TEAM CONDITIONING

No matter who is buying your business, they'll want to buy more than your personal network and capabilities. In the words of Minor, "Make your business look like it's worth the asking price." This is especially true if you're planning to leave the business after the sale.

"Build a strong management team that can carry on when you're gone," says Minor. A strong team, clear policies and procedures, and a broad customer base are the underpinnings of value. The business should not just run without you, but be positioned to grow without you.

Of course, employees--especially key management--can also become a liability during a sale. "Make sure that key [employees] are incentivized to stay on," says Agrawal. "It's critical to minimize disruption."

Keeping employees around during a transition period takes more than just financial incentives. Communication is also key. Carefully timed communication, that is. Since sale transactions are notoriously volatile and demand confidentiality on both sides, Minor says employees should never be told of a sale until the deal is closed. He unapologetically prepares sellers for the moment when a key employee will ask, point-blank, "Is the company for sale?" The best response, he says, is a misleading fib. "It's vital to keep the transaction confidential, even if it means apologizing to your employees after the fact." Since most sellers are ethically and legally bound by nondisclosure agreements in advance, obfuscating the truth is nearly unavoidable.

There will, of course, come a time when everyone learns of the transaction. Prepare in advance for that critical period. Says Agrawal, "You'll need a communication plan--a script--to talk to customers, suppliers, employees and partner."

MEANWHILE, BACK AT THE OFFICE ...

So far, so good: You've built a scalable company with a strong growth strategy, you have immaculate accounting and audited financials, and you've started negotiations with two big public companies. The payoff seems to be just down the road.

Hang on. While you've been focused on selling the company, who's been making sure the company stays focused on selling your product? "The last thing you want is a financial or operational hiccup during negotiations," says Freedman. Many deals have been quashed when financial results from the last month or the last quarter are off target. Even if the buyer doesn't walkaway, the price is likely to take a last-minute tumble.

Freedman points out that, in a sale, the company is the product. "If you take your eye off the ball and focus only on selling the business, in the end, you won't have a great product to sell."

DILIGENCE AND DISCLOSURE

The sale of a business is inevitably as complex as the business itself. If the business has 10 years of operating history, then it has 10 years of potential liabilities, lawsuits and bad accounting. Even for a relatively simple business, buyers want to know exactly where the business stands. That means the seller has to disclose copious amounts of documentation and give a strict personal guarantee, called a warrant or representation, that all disclosures are complete and accurate. "If there's any hair on the deal--any red flags--it's going to come out. So you're best disclosing everything upfront," says Agrawal of VisionQuest. "Don't play any games." The quickest way to unravel a deal is to leave a buyer feeling duped.