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Transaction Team Members When Implementing an Exit Strategy for Selling a Business

Transaction Team Members When Implementing an Exit Strategy for Selling a Business

One of the first steps when implementing an exit strategy for selling a business an entrepreneur needs to perform is to assemble their transaction team of professional advisers. The first professional adviser traditionally consulted by a business owner related to the sale of a privately held company or family business is their CPA or accountant. A CPA or accountant is a natural party to start exit strategy planning with because they are familiar with the historical financial performance of the company, have a working knowledge of valuation models employed to establish the value of a privately held company or family business, and have likely assisted other clients with the sale of their businesses. Once a decision has been made to sell the company, it is common for a company’s CPA or accountant to work collaboratively with an experienced, knowledgeable business intermediary and their client to establish an asking price for the business as a proper business valuation will include a review and assessment of historical financial records. Once a buyer has been located for the business, the company’s CPA or accountant will play a valuable role in due diligence, negotiating the tax allocation for the transaction, and insuring that a transfer of ownership is smoothly facilitated from an accounting & tax perspective. It is recommended that an entrepreneur assess the knowledge & experience of their accounting professional related to transactional accounting issues associated with the sale of a business early in exit strategy planning. If transactional accounting is not an area of knowledge & experience for the accounting professional, a collaborating CPA or accountant can be retained on a project basis. It is common for IBA to assist its clients with adding a transactional accountant to their transaction team with a referral from our large database of CPA’s & accountants we have successfully worked with in the past on the sale of businesses.

The second member of a transaction team when implementing an exit strategy to sell a business is commonly a business broker. An experienced, knowledgeable business sale intermediary brings the following skill set to the transaction team:

1. Market Knowledge – An important component in accurately pricing a business and achieving the maximum value for a privately held company is knowledge of present market conditions & dynamics. This knowledge includes information on prior transactions in the industry & geographic area of the business; buyer quantities, motivations, & capabilities in the marketplace; and acquisition financing terms & availability from institutional and private lenders. It is recommended that business owners inquire about the years of experience & number of transactions a business broker and their firm have completed in the last year and lifetime when assessing engaging a business sale intermediary.

2. Marketing Ability – One of the primary motivations for hiring a business broker is their ability to locate qualified buyer prospects to purchase the business. It is recommended that business owners obtain a comprehensive overview of the marketing program employed by a business broker to sell businesses when assessing engaging a business sale intermediary. IBA employs a multiple tier marketing program on behalf of our clients that includes matching businesses with buyers who participate in our internal buyer database program to get the first opportunity to look at new businesses when they first enter the market, public domain marketing venues, private industry marketing venues, and network marketing.

An important component in marketing a business for sale is maintenance of a confidential environment for the exchange of information with potential business buyers. It is in the best interest of the business, seller, and buyer for information that a business is for sale not enter the public domain until the parties involved in the transaction wish to disclose the information. An experienced, knowledgeable business sale intermediary will have established systems & documentation in place to maintain a confidential environment during the sale process. It is prudent for a business seller to evaluate these processes prior to engaging a business broker to mitigate the likelihood of customers, employees, competitors, and vendors learning of the intention to sell prior to the desired time of disclosure.

3. Sales Ability – The sale of a business is a sophisticated, nuanced, long horizon, consultative sale process. A business sale intermediary should be selected by a business owner as part of an exit strategy sale process that has the ability to articulately and persuasively convey the attributes & potential associated with a specific privately held company or family owned business. Each business has unique attributes that separate it from its competition. Persuasive articulation of these attributes is fundamental to achieving the highest possible sale price for a business. Knowledge & experience gained selling similar companies in an industry also contribute to a successful sale process. It is also critical that a business broker have the sales ability to effectively communicate information to attorneys, accountants, and bankers. All three of these parties, along with the business buyer, have the ability to kill a transaction. A business broker that does not understand or have the ability to convey legal, accounting, or banking information on behalf of their client provides inferior representation to a business sale intermediary that possesses this skill set.

4. Negotiation Ability – The sale of a business is a long horizon, multiple tier negotiation process complicated by the fact that the parties involved in the transaction will likely have to work collaboratively together for a period of time after the sale is completed. It is “best practice” in a transaction of this nature to have an experienced, knowledgeable intermediary facilitate negotiations to allow the parties to negotiate in “good faith” without having to engage directly in potentially confrontational negotiations with the other party while trying to achieve deal terms in their best interest. In the sale of a business, it is often in an entrepreneur’s “best interest” to engage an experienced, knowledgeable business broker to facilitate negotiations on their behalf. Engagement of a an experienced, knowledgeable business sale intermediary will provide a business owner with information in negotiations on market terms & achievements in similar situations, a skill set at the negotiating table that they likely do not possess, and insurance that all relevant components of the transaction are negotiated from a position of strength and knowledge. Commonly negotiated components in a business sale transaction include price, terms, non-competition agreements, employment or consulting agreements, and tax allocation.

5. Deal Facilitation – Reaching agreement on the terms & conditions associated with the sale of a business is a positive, preliminary step in the sale process. Navigation from that achievement to the transfer of ownership can be a draining, turbulent and periodically confrontational process for the parties with many transactions being lost in the deal facilitation stage of the sale. An experienced, knowledgeable business sale intermediary can be a strong asset for a business seller during this stage of the transaction and help insure the intentions of the parties are achieved. Transaction components that need to be facilitated between preliminary agreement and closing often include legal documentation for the transaction, due diligence, tax allocation, funding, and escrow. It is recommended that a business owner have a business broker provide a comprehensive overview of the entire sale process prior to engaging that individual to assist with the sale of their business. If the business broker lacks the knowledge & experience to respond to general process questions from a potential client then they likely lack the ability to facilitate the transaction in the “best interest” of their client from listing to sale.

The third standard member of a business sale transaction team is an attorney. It is recommended that an entrepreneur engage an experienced & knowledgeable business attorney when selling a business. The primary roles of the seller’s attorney in a business sale transaction are to make sure the legal documentation is clear & concise, post transaction liability is mitigated, and payment is received as defined in the legal agreement. It is common for IBA to assist its clients with adding a business attorney to their transaction team with a referral from our large database of business attorneys we have successfully worked with in the past on the sale of businesses.

The above identified professionals are the most common transaction team members employed by entrepreneurs in business sale transactions involving the purchase & sale of privately held companies or family businesses. Consultants, wealth management professionals, 1031 exchange facilitators, and appraisers are also often added to transaction teams for their special expertise. It is recommended that business owners consult with a wealth management professional, if they are receiving a large lump sum at time of sale or implementing an exit strategy for purposes of retirement. Strategies exist in the wealth management community which can mitigate the tax implications of the sale or enhance the net proceeds from a transaction over time. It is common for IBA to assist its clients with adding a wealth management professional to their transaction team with a referral from our large database of wealth management advisers we have successfully worked collaboratively with in the past.

It is important for a business seller implementing a business sale exit strategy to build a knowledgeable, experienced team that will work collaboratively with each other to achieve the best possible outcome for their mutual client. IBA’s ability to build that collaborative work environment is one of the fundamental reasons for our success as intermediaries facilitating business sale transactions in the “middle market”.

IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, and mergers & acquisitions community on subjects relevant to the purchase & sale of privately held companies and family owned businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.

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