There are many reasons why an entrepreneur may decide to sell his business. It can be: a desire to start a new activity, a retirement or to transfer the company to buyers with more financial means. Each manager has his own story and reasons. But in concrete terms, how do you sell your company?
Advimotion is a financial consulting firm that assists startups and SMEs in obtaining non-dilutive financing and equity fundraising. We also act as advisors in business sales transactions to best represent the interests of sellers.
We offer strategic consulting and outsourced CFO services to ensure the financial and operational monitoring of your business. Finally, we take care of the drafting of investor documentation : business plan, pitch deck, creation of reporting files and valuation calculations.
For more information, please contact us.
Step 1 : Audit the company
The entrepreneur measures the performance of each department of the company in order to make a diagnosis. The audit allows to have a global vision of the company by noting its strengths and weaknesses. It is therefore a complete audit : financial, market, tax, legal… This first step is long. On the basis of the audit of the company, the manager will be able to determine the valuation and the selling price of the company.
Step 2 : Determining the value of the company
The valuation of the company allows to fix the selling price. There are different ways of estimating the valuation. The most commonly used valuation method is the valuation by multiples. Based on the figures obtained during the audit, the valuation multiple of the sector must be applied to the chosen financial indicator. If the company is in the industry or construction sector, then the asset valuation will be more appropriate. Indeed, companies in this sector hold many assets. Thus, it will be a question of evaluating one by one the transfer price of each asset in order to obtain the valuation of the company. Just like the audit, the valuation takes time to be done rigorously.
Step 3 : Search for a buyer
Once the audit and the valuation of the company are done, the entrepreneur must look for a buyer. The buyer has various profiles.
Potential buyers of companies fall into three general categories:
Strategic buyers: Generally the highest paying group of buyers, strategic buyers want to buy your business to improve their own business fortunes. This may mean reducing competition, achieving synergies, or gaining access to resources or markets. Strategic buyers include suppliers, competitors, and customers.
Financial buyers: Unlike strategic buyers, these are private equity funds, family offices and other companies that buy, improve and sell other companies.
Operator Buyers: These are entrepreneurs and managers (including your own employees) who view your business as a gateway to employment, income or an alternative lifestyle. Operators tend to be the least experienced and least able to obtain the ideal financing, but that doesn’t necessarily preclude them from being the right buyer.
Make sure the buyer has the strong shoulders to take over the business. If competing companies are showing signs of buying intent, it is advisable not to share your inside information during the initial discussions. Some competing companies are simply looking for information.
Step 4 : Conducting due diligence with the buyer
The due diligence process takes place in several stages :
First phase of how to sell your company : the preliminary phase
The buyer must specify the guidelines of the investigation and choose the professionals (tax experts, auditors, accountants, etc.) who will conduct the investigation.
Similarly, the seller must designate the professionals who will be part of the investigation team, responsible for responding to requests for information.
Note that the selection of the investigation team plays a key role in the due diligence process. When determining its composition, several factors should be taken into account, such as experience in similar cases, methodology and technical capacity of its members. To be effective, the team should be multidisciplinary and composed of experts in all areas relevant to the investigation.
Phase Two: The Investigation Phase (Information Retrieval and Analysis)
The name of this phase is exhaustive and it allows to see the details of the analysis progress in the document containing all the important information related to the business transfer operation.
Third phase of how to sell your business : the data confirmation phase
During this phase, the buyer must verify the legal dimension of the information he has received on the various aspects of the business. Generally, the seller will have to provide some explanations to the buyer on specific points. This is why it is advisable to establish a schedule of meetings for this purpose.
Fourth phase of how to sell your company: the transmission of the due diligence report
All the information and the legal analysis are gathered and recorded in a report.
This due diligence report is generally structured as follows
A short introduction on the subject, the size and the reason for the work done and a summary to inform the buyer of the main aspects on which he should focus.
A chapter for each legal sector analyzed. Each of the chapters will include a summary of each element examined (property, building, contacts, etc.), the documentation and information used for this examination and a legal analysis of the aspect in question.
At the end of the report or of each chapter, the buyer will find a summary of the main irregularities or negative aspects identified, its possible legal consequences and, in his case, the possible alternative solutions.
The report also includes annexes containing data or information provided by the company itself, whose observation or knowledge seems relevant.
It is necessary to designate in advance the persons in charge of delivering the due diligence report, given the confidential nature of this document. It is also necessary to include a confidentiality clause in order to prohibit its distribution to third parties other than the parties to the proposed business transfer transaction and its use for purposes other than those agreed upon. At this point, the question of how to transfer your business should be clearer.
If you need support for such an operation or you wish to have more information, do not hesitate to call on Advimotion. Advimotion is different professions : fundraiser, outsourced CFO, consulting in business transfer.
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