Don't Leave Chips on the Table When Selling Your Business
Over the next decade, six out of 10 U.S. business owners plan to sell their companies — an increase over previous years, according to BizBuySell.com. Now is a good time to plan an exit strategy. A substantial amount of money can be left on the table in these transactions when one side lacks sophisticated financial and legal professionals to negotiate the deal.
Business owners will be better positioned if they understand the value of their company, have sound strategic planning and make business improvements in advance of putting their company on the market.
The Cost of Being Unprepared
A team from the Brown Smith Wallace Transaction Advisory and Litigation Support practice recently represented the seller in a working capital dispute and helped find over six figures in savings. The seller went down the normal path of working with his business broker and attorney to sell his business under a standard purchase agreement. During the planning phase, he did not want any additional professional fees to complete the transaction, so he did not bring in outside transaction advisory support.
Sixty days after the sale was completed, the seller received a working capital dispute from the buyer claiming the seller owed over $500,000 ─ not an immaterial amount of money for an owner who was just embarking on retirement after selling his entire life investment in the company that he owned for more than 30 years.
The seller hired a transaction expert from Brown Smith Wallace to challenge the working capital claim from the buyer. The expert and the Transaction Advisory and Litigation Support team, which comprises forensic accountants, business valuation appraisers, experienced transaction professionals and litigation experts, reviewed the assertions and claims presented by the buyer and successfully mitigated the claim to less than half of the demand.
Unfortunately, the seller truly did owe over $100,000 back to the buyer. The downfall was that the owner did not understand how working capital impacted the final sales price and his internal accountants did not either ─ understandable since few accountants experience a sales transaction firsthand. The lesson to learn is that better advice and planning on the front end could have prepared the seller to prevent such a working capital exposure.
The Value of Doing It Right
The Transaction Advisory and Litigation Support team is currently advising a client on a large transaction valued at over $200 million dollars. This client brought the team in early to understand the working capital framework and work with the business broker and attorney to craft a fair and neutral working capital target for the purchase agreement. The team also recognized the need for tax and advisory support to determine pre-closing distributions that could be made prior to the sale to ensure no chips are left on the table and to work with the sellers and their estate to plan for the eventual windfall.
For more information on developing an exit strategy, click here to request a copy of “5 Key Steps for a Successful Ownership Exit."
Schedule a meeting with Bryan Graiff, Partner in Charge, Transaction Advisory and Litigation Support, to discuss your business exit strategy.