In sales and financing, set your goals first
I recommend certain general principles for any business owner contemplating a business sale or debt/equity financing.
First, make sure your “house” is in order. The way you’ve organized your business will impact the ease or difficulty of a business succession or financing.
Ensure that your business records are updated, organize the minutes from your shareholders and board of directors meetings and keep your annual reports. Properly document all of your business relationships, including contracts with customers, partners and vendors. These are all important documents that potential investors or acquirers will want to review during the due diligence process. They also represent relationships that bring value to your company, and will be important negotiating tools.
Next, plan proactively. Meet with your advisers – lawyer and accountant – early in the process. They’ll guide you, provide valuable input and help you envision the end result.
Every business transaction has its share of give-and-take, and your ideal scenario may not match your acquirer’s or investor’s. But it’s vital to develop a structured plan, which will serve as a road-map during negotiations. It is important to envision your “bottom line” in order to pursue appropriate potential acquirers or investors and to set realistic expectations.
Decide on your “no-bend issues” — your top priorities. Perhaps you’re concerned that your employees maintain certain benefits, or that your company continues to operate in a certain way. Discuss these “non-flexible” issues with your attorney up-front so you can weed out prospects that won’t negotiate on these important items.
Consider what your business will look like – and how it should operate – after the transaction is completed. Many of my clients’ businesses are privately-owned, and they are personally vested into their businesses. These businesses are often a tight-knit group, and the owners are usually very close with their employees. After a sale, or after bringing in an investor, they want to maintain the company culture following the transaction.
For some of my clients, especially family-owned companies, these business transactions can be emotional. I recognize that personal issues are important – for instance, wanting to ensure that employees are treated well after the deal. I work with my clients to identify their priorities so we can negotiate a deal that makes them feel comfortable.
While you never want to negotiate from an emotional point of view, it’s unrealistic to put these feelings aside completely. That’s where planning and securing appropriate professional support can help. If you plan properly and set your priorities, it’s easier to negotiate a deal that will successfully reach your goals.
I recently represented a small-business owner who was selling his software business to a publicly traded company in the United Kingdom. Like many privately held business owners, he was as concerned about the future treatment of his employees as he was about the amount of money he’d make on the sale. We developed covenants to respect his policies, and he decided that if the buyer couldn’t respect these covenants, it was a deal-breaker.
When we work with equity or debt financing, we’re bringing in investors or lenders who have their own view of how the business should be run. This view could be cold and sterile, and differ from the business owner’s vision. The key is to find middle ground. Of course, if a small-business owner is looking for financing, the investor often has more bargaining power. If a company is in trouble, the owner may just want to get whatever money they can, and be more willing to adopt the investor’s policies and vision.
During any business transaction, it’s important to work with an attorney who makes you feel comfortable. You must trust this person – and communicate well with them – to achieve successful results.
Your attorney should ask about all of these issues, including the status of your records, your priorities for the transaction and your vision for the future. Your attorney shouldn’t drive your decisions, but rather should ask the right questions to help you determine your goals.
Erik Barstow, chair of Wiggin & Nourie’s Business Law Group, works in the firm’s Portsmouth office, where he focuses on mergers and acquisitions, debt and equity financings, commercial contracts and technology licensing and development agreements. He can be reached at 603-436-7667 or email@example.com.