The COVID-19 pandemic has wreaked havoc on many businesses, including those in the manufacturing sector.
This has resulted in supply chain issues, business closures and displaced employees, not to mention the enormous personal impact on employees and their loved ones, many of whom have paid the ultimate sacrifice with their lives.
The pandemic has caused many workers to assess their employment situation, resulting in the big quit when workers quit their jobs.
While not the Great Resignation per se, the pandemic and various business challenges are also causing business owners, especially aging baby boomers, to wonder what’s next for their companies.
Is it time to consider selling the business and retiring to a tropical island (or just spending more time playing golf or playing with the grandkids)?
With trillions of dollars of private equity dry powder in the market, continued uncertainty of the impacts of the pandemic, and the benefits to be gained from corporate consolidations, now may be the time to consider the next phase for your business.
Market disruptions can present favorable opportunities for business combinations, turning very difficult times into win-win situations for all parties involved.
tips for success
If you’re considering selling your business to take advantage of these opportunities, here are 10 tips to consider.
1. Plan ahead. Do not wait. Make sure your business documents are in order and up to date well before planning the sale. A well-organized business with its house in order makes a good impression on buyers and will facilitate the selling process.
2. Hire an investment banker. Before you even consider selling your business, it helps to contact an investment banker who knows your industry.
An experienced investment banker can help you position your business for sale, help you value your business to maximize your returns, and assist you with the sale process itself.
Investment bankers tend to focus on specific industries, so be sure to select one with expertise in manufacturing companies in your industry.
Shop around and interview a few to hire one who shares your sensibilities and has the necessary expertise and a proven track record of success in identifying buyers and closing deals.
3. Surround yourself with competent advisers. Having a good accounting firm and a good legal advisor can be invaluable in preparing for the sale of your business and helping you sell it.
A sales process has many facets that happen on a parallel track. A buyer’s due diligence process will consider financial matters, entity governance, ownership, contracts, employment matters, employee benefits, real estate, and environmental matters, among others.
Having accountants and lawyers who understand your business and can help facilitate the due diligence process, resolve any issues that arise, contribute their experience to know what to transpire and what is less of a concern, and ultimately documenting the transaction will put you in the right place for a smooth process and the desired outcome. It takes a village.
4. Consider the tax consequences. Engage your advisors to help you assess the most tax-efficient way to sell your business.
There are only a few ways to sell a business: an asset sale, a stock sale, a merger, and in some states, a stock exchange. Each method of sale comes with different tax consequences, which will impact the owners’ net worth of the business.
Asset sales can be subject to a two-tier tax, with an entity-level tax followed by a tax on owners when the net proceeds of the sale are distributed.
Other forms of sales transactions may have only one owner-level tax level.
5. Have a Financial Statement Audit. Although not all businesses have audited financial statements, audited financial statements help buyers evaluate your business by providing an auditor’s assessment of your business’ financial condition.
Having a reputable auditing firm lends credibility to your business and speeds up the review and assessment of a company’s financial condition.
6. Sign an NDA. Before sharing your business information with others, make sure the parties have signed a nondisclosure agreement to keep the information exchanged confidential.
Proprietary information and trade secrets of a company are a valuable asset, and every company must take care to protect this information.
Businesses should take particular care when dealing with competitors as potential buyers and may find it wise to share information in waves so that their most sensitive information is only shared when it has become clear that a transaction is likely to take place with this buyer.
seven. Come up with solutions. Each business will have its own issues and challenges. You may have a thorny ongoing dispute or an environmental hazard on your property.
Don’t put your head in the sand. Know how you intend to handle difficult situations to minimize the impact on a buyer.
8. Defend your employees. If the plan is to bring your employees into the deal, make sure they are treated well to ensure a successful sale.
In many transactions, the seller’s workforce is key to the success of the business. Mapping benefits from seller to buyer so employees have at least the same benefits they are used to will help alleviate some of the employee anxiety that is a natural part of change.
9. Don’t forget to look near you. Think of the next generation of family members and current employees as buyers of the business. No one may know the business better than themselves and maybe they want to take the business to the next level.
ten. keep the faith. The sales process can take a long time and have many twists and turns, ups and downs. Be reasonable, be patient, be open and flexible. If it’s meant to be, it will happen.
About the Author: Donna Brooks is a partner of Shipman & Goodwin LLP business and finance practice, where she provides advice on business organization, business operations and procurement, entity governance, asset management and staffing, financing, capital raising, securities offerings, equity compensation, joint ventures and mergers and acquisitions.
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