We continue to see some of our clients looking to sell their business, whether to a strategic buyer or to a private equity group. For many of our clients this may be the one and only time that they sell a business. For any person looking to sell a business, there are some things to keep in mind or expect during the whole process.
If you plan on selling your business in the future, you should always plan ahead. Depending upon the size of the company, it is recommended that you plan to have financial statements for multiple years that have been subject to a review or audit engagement. The audit engagement is preferred as it is the one that provides the most assurance on the financial statements. Furthermore, in planning and conducting an audit, the auditor will obtain an understanding of your internal control. A by-product of this is that the auditor will likely have some observations that are obtained while gaining an understanding of your internal control. Your auditor will communicate any control deficiencies and other recommendations to you that are important to solidifying the internal control strength of the company. This will go a long way and may help command a higher sale price for your company when you can demonstrate that you have a solid system of internal control.
As you are getting closer to the point of marketing your company for sale, you may enter into an engagement with an investment bank and corporate advisory firm. They will assist your company with all phases of the marketing and sale of your business. However, there is a significant cost for their services, some of which will be payable whether you sell your business or not. Furthermore, they may have additional fees that will be payable to them upon the closing of the sale of your business. On top of this, you will also be utilizing the services of your attorney for assistance with drafting a purchase and sale agreement and your certified public accountant for income tax planning for the sale.
Finally, a potential acquiring company or private equity group, will want to perform due diligence on your business before any deal is finalized. Often, they will contract with a firm that provides these transaction advisory services to perform this due diligence work. The due diligence process will likely include the firm reviewing workpapers of the public accounting firm that was engaged to perform the most recent audit(s) of the company. You will need to work with your auditor to grant access to those workpapers. Furthermore, the firm will likely visit your business over the course of a couple days and meet with various members of your organization. They will also make a number of requests for backup/source documents. I have heard that these requests are often much more detailed and extensive than requests made as part of an audit. The due diligence firm will be performing a quality of earnings and gaining additional insight into the operations of the company and its personnel in order to advise the purchaser in the deal. Since there is a lot on the line, you can expect that this process will be very intense and will require a significant amount of your team’s involvement in fulfilling the requests.
In summary, selling your company may be a once in a lifetime endeavor. Having a plan in place and expectations for the overall process leading up to the sale will make you well prepared for what will lie ahead. Hopefully, the time that you put into the process and making it easy for all parties involved, will reap the rewards when you finally ink the sale.
Jonathan Poppel, CPA