By Affiliate Colleen Pleasant Kline, Esq., Partner at Miles & Stockbridge
Now that the economy appears to have stabilized to a degree, mergers and acquisition activity is beginning to increase as certain access to credit has similarly relaxed. There are also many private equity companies that have cash and are looking to invest such funds. As a result, you may be considering that now might be a good time to explore the waters and determine if you would like to sell your company.
Clean Your House
If you are considering selling your company there are several things that I would recommend the company do before you even “put the company on the market”. First and foremost, get your house in order. Have someone perform a document audit and make sure that you have copies of all of your contracts, and that all such contracts are signed by all parties to the contract. Make sure your internal corporate or limited liability company records are up to date and current. Review your current financial position and determine whether you are exercising good business hygiene practices, for example, have you collected your accounts receivable, how current are your accounts payable, are there several informal verbal agreements, and if so can these be formalized? Meet with a lawyer who can provide you with details of what you can expect as part of the due diligence process, so you can collectively identify any issues and possibly resolve them before you have to explain it to a buyer. This also reduces the amount of time and possible interruption to the operation of your business while you are trying to sell it.
Review your existing employment and employee benefits policies. Consider issues such as: Have all of your employees executed confidentiality and non-disclosure agreements? Do you have all of your employee and employee benefit documents and the necessary reporting to the appropriate authorities? Are there any severance, workers’ compensation, or union issues that may pose a problem to a potential buyer? Have you filed all necessary forms with the IRS regarding any of your benefit plans?
Figure Out What You Need
It is also a good idea to meet with a financial adviser to help you understand how much money you may need to receive in order for you to sell and meet your individual personal goals. Will the sales price provide you with sufficient funds to purchase that second home, or if properly invested, provide sufficient funds to see you through your retirement or allow you to live and find your next investment?
Figure Out What You Might be Able to Get
Once you know what your personal financial goals are, you should meet with your accountant and ask them to help you identify what they believe your company might be worth and whether there are any changes that they know of to help you minimize taxes on the sale and maximize your return. There are also many investment bankers or similar business brokers who may be able to help you find buyers and give you an idea as to what similar businesses with similar financial results were able to obtain.
Protect your Company Information
If you have decided that it is time to sell, do not start sharing any of your confidential business information without first making sure that any potential purchaser has executed a confidentiality and non-disclosure agreement. This agreement should restrict not only their ability to use any information you provide for any purpose other than examining a potential transaction between the two of you, it should also prohibit any party from soliciting and hiring away your employees or customers. It should also make clear that you are not obligated to sell and are not providing any license or other offer to such party unless and until a more definitive agreement is executed.
Get Your Advisors Together (Circle the Wagons)
In the event that you have managed to get to this point and have not yet engaged legal counsel, make sure that before you agree to any letter of intent or memorandum of understanding that you discuss it with your legal counsel. They should be able to advise you as to how the deal should be structured for tax reasons and how to make certain that you are able to keep the most funds in your pocket.
While it is often enticing to wait until you are further along in a process to involve your financial adviser, accountants or lawyers, the sooner that you alert these individuals that you may be considering selling, the more they can do to make sure that you are ready and are taking advantage of all opportunities to maximize tax savings and your net proceeds. Getting an attorney involved early in the process can help the entire transaction run smoothly and minimize your risk of costly problems down the road that may jeopardize the transaction.
DISCLAIMER: Opinions and conclusions in this post are solely those of the author unless otherwise indicated. This article is for general information purposes and is not intended to be and should not be taken as legal advice on any particular matter. It is not intended to and does not create any attorney-client relationship. Since legal advice must vary with individual circumstances, do not act or refrain from acting on the basis of this article without consulting professional legal counsel. If you would like additional information on the subject matter of this article, please feel free to contact the author. IRS CIRCULAR 230 NOTICE: Any U.S. tax advice contained in this communication (or in any attachment) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding federal tax penalties or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.