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Selling your privately-owned business

This article is the third in our series of “Selling Your Privately-Owned Business.” In this article, we focus on the time when you are identifying prospective buyers and holding preliminary discussions with one or more buyers. The following three suggestions will help you avoid some of the more common missteps during this critical time.

Learn how your business is valued and how value is negotiated now

Businesses are valued in many different ways – multiples of earnings, book value or cash flow, to name just a few. Learning how a business in your industry is normally valued for a sale can assist you in targeting goals in your business that may ready it for sale at a maximum price. Understanding now from your legal counsel what is standard in transactions, such as time limits on representations and warranties you will be asked to give, and caps, deductibles and other limitations on your post-closing liability, can assist you in negotiating a deal in which you maximize the amount of the purchase price you keep.

Have the buyer sign a confidentiality agreement

Your company’s financial and other proprietary information is important to protect. So are your relationships with employees, suppliers and customers. Your legal counsel should prepare, and a prospective buyer should sign, a confidentiality agreement that will bind the potential buyer and its representatives to safeguard your confidential information and to keep confidential the fact that you are having discussions. You need to ensure that your employees, suppliers and customers learn of a potential sale only from you and only at an appropriate time.

The letter of intent — get your advisors involved early on

Buyers generally ask a seller to sign a letter of intent setting forth the structure and some key provisions of the transaction. It is advisable to get your accountant and legal counsel involved before you sign any documentation, even a “non-binding” letter of intent. The tax consequences of how a sale is structured can affect the value you ultimately receive. Savvy buyers generally involve legal counsel in preparing letters of intent. Often letters of intent contain what might seem like straightforward language, but may bind you legally or morally to terms that favor the buyer. There may also be terms related to maximizing your value or limiting your liability after the sale that are not included in the letter of intent, but should be. Negotiating terms after a letter of intent is signed is more difficult than beforehand when a buyer is more motivated and flexible.

  • Partner

    Peggy represents numerous publicly and privately held corporations in U.S. and international transactions. She has over 25 years of experience working with manufacturing and service corporations in corporate and commercial ...

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