Imagine that you are a mid-market business owner and you have analyzed the current health and macro economic situation and you are seriously considering selling your business. What are the possible reasons you might sell now? If it is just the right time to execute on the exit strategy then you may be ready. Another reason you may want to sell? You are concerned about future economic trends. Also with loans available and interest rates at historic lows, you may know that financing alternatives for buyers right now are excellent. Here’s another one. You’ve got an established business, with a good financial history and strong reputation, in perhaps an “essential” industry, that should merit premium pricing. Even if you are not in “an essential” industry area you know your business will survive and thrive and it is time. Now the big question. What are the key steps to the selling process that need to be completed to ensure that the transaction is in fact efficient and maximizes value for you, the seller?
Selling starts with “What is my business worth?” Working with Oak Capital Advisors to prepare a Broker Opinion of Value, which supports the price at which an owner can expect to sell the business in a reasonable time frame, is an important first step. Critical steps in the valuation process include gaining an understanding of the operations of the business, a review of sales and earnings trends, calculating Seller’s Discretionary Earnings – the cash flow available to a new owner to operate and meet liabilities – and analyzing the recent sale of comparable businesses. Oak Capital Advisors will complete a valuation of your business, determining a sales price, and pre-screen with a lender to ensure it meets current lending guidelines.
Once engaged, Oak Capital Advisors works with the owner to gain an in-depth understanding of the business and prepares confidential marketing material. Oak Capital Advisors strives to maintain confidentiality and goes to great lengths to protect the identity of the business. An abridged summary profile, which provides pertinent information for a prospective buyer without disclosing sensitive detail, will be used to market the business the business locally, regionally, and nationally, if appropriate. Oak Capital Advisors will identify and market to potential buyers directly as well as marketing via the internet and newsletters of trade associations and other mass methods.
Once an inquiry is received by Oak Capital Advisors, we will initiate the process of pre-screening the prospective buyer. Prospective buyers will be asked to provide a Non-Disclosure Agreement (NDA,) a brief financial statement, and a biography. We will meet with the buyer, either in person or by phone/visual conference call to discuss the buying process and screen their qualifications prior to release of any confidential information. At this point Oak Capital Advisors will provide a Confidential Business Review (CBR) which provides much greater detail than the summary profile, including the identity of the business, location, local demographics, operations, marketing, and financial detail, and any disclosure of any negative issues related to the business that may impact the transaction.
After the prospective buyer has the opportunity to review the CBR and review initial questions with Oak Capital Advisors, the next step is a meeting between the prospective buyer and the seller facilitated by Oak Capital Advisors, to tour the business, explain history and operations, and allow the buyer to ask questions directly to the owner. This is the opportunity for the buyer and seller to get to know each other and establish some chemistry; a transaction always seems to be smoother if the two parties involved like each other. Buyer/seller meetings may be held off site or after hours, while tours are very normally held after hours, to maintain confidentiality. This is typically a high-level meeting, with review of details and fact-checking handled later, during due diligence.
At this point the prospective buyer should have enough information to decide whether to buy the business. If yes, either a Letter of Intent (LOI) or Offer to Purchase with details of the offer is presented to the seller. Oak Capital Advisors will meet with the seller to review details and explain the various components of the offer, and work with the seller to either accept, reject, or negotiate further. Oak Capital Advisors’ goal will be to finalize an LOI or Offer to Purchase that maximizes value for the seller acceptable to the prospective buyer.
After an offer from the prospective buyer has been accepted, Oak Capital Advisors will manage the Due Diligence Process while the owner of the business maintains his focus on operations and growing the business during the transition. A prospective buyer will want to analyze both operations and financial results for at least the most recent three years. Most prospective buyers are seeking to verify what has already been presented regarding the business in the CBR and the buyer/seller meeting. Oak Capital Advisors will guide and counsel the prospective buyer through the Due Diligence process, focusing on helping the business owner to maximize revenue and move to closing.
Due Diligence is complete, and buyer financing has been arranged, it’s time to close the transaction. By now Oak Capital Advisors has helped the seller to establish the right support team – attorney, CPA, financial advisor, career advisor – who will assist with preparing closing documents, tax planning, and addressing “what’s next?” if so desired. Oak Capital Advisors will be a continual part of the process, both to coordinate and address issues that may arise. We look forward to working with the seller, throughout the sales process, as a key member of the support team.