We cannot emphasize enough the importance of the deal structure. Many CEOs go through the process of identifying buyers and even negotiating the purchase price, but fail to consummate the transaction because of an inability to agree to terms.
Even when the terms are agreed to, if they are not considered carefully, a deal can be put together that is ultimately unsuccessful because it is not affordable for a buyer or neglects to address critical issues for one side of the transaction or the other.
Once preliminary terms have been agreed upon between you and a potential buyer, you should elicit a letter of intent, which outlines what you have agreed to on a preliminary basis in terms of price, structure and the transition process.
The letter of intent is not generally a binding agreement, but provides a framework for going forward. It could also include a “breakup” penalty if the buyer decides to walk away. If the letter of intent was binding, it would be as legal and enforceable as a purchase agreement.
Once you close the sale, the real work begins for most CEOs. The buyer will likely have some expectation that you will help facilitate the transition.
Brace yourself emotionally for this experience. The sale of a business is usually emotionally difficult for the CEO, particularly if he or she has devoted sweat, tears and years to building the business.
It is also likely that your employees and customers may have an emotional commitment you will underestimate. Your gain in selling your business is their loss. The success of your ability to transfer these relationships to the buyer will in large part depend on your ability and preparation to honestly help employees and customers understand “what’s in it for them” in this change.
Commit to this transition process with as much vigor as you did when building your business to ensure that the legacy you leave with your customers, your employees and your professional community is how you want to be remembered.
Mergers and acquisitions of businesses fail for three primary reasons:
- No clear strategy as to why the parties should complete the deal.
- Cultures and business philosophies are incompatible.
- Expectations of the parties are unrealistic.
You must be prepared to walk away from the transaction if it is no longer within your realm of reasonableness or aligned with your exit strategy.
These steps are based on “Exiting Strategies: The CEO’s Seven Critical Steps To Cashing- Out Of A Business, Managing and Preserving Wealth.”
Christopher G. Snyder and Haitham “Hutch” E. Ashoo are principals of Pillar Financial Services in Walnut Creek. Contact them at 925-356-6780.
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