Key Stakeholders, Management and Advisors Help Move the Process Forward

Key Takeaways:
  • Start your sale discussions with a small, trusted inner circle to keep information confidential and define your goals.
  • Bring in outside professionals—like CPAs, attorneys and investment bankers—during due diligence to handle financial, legal and deal negotiation tasks.
  • Lean on your core team in the closing phase to finalize negotiations, sign agreements and communicate transition plans to employees and stakeholders.

 

You have decided to sell your company, and the time has come to involve others to help prepare and subsequently sell your business. But who?  

This is a delicate stage of the process. Other owners, members of key management, external advisors, etc. (“key stakeholders”) are commonly involved to ensure the sale is executed, and all parties are happy with the outcome. But there is a time and a place for these key stakeholders to get involved, and for different reasons. The question of who to involve in discussions about a company sale changes with each phase of the sale process – the early discussion phase, the due diligence phase and the closing phase. 

Early Discussion Phase – The ‘Inner Circle’ 

This is where it all begins. Once you’ve decided to sell, the first step is to establish your rationale—the “why” behind your decision—and communicate it to a select group of trusted individuals. This “inner circle” will help define your goals, objectives and timeline for the sale. 

Keep the circle small. The last thing you want is for word to get out to employees, customers and vendors that the company is in play, particularly if you are contemplating a sale to an outside buyer. More importantly, when assembling your inner circle, the most important element to consider is trust – can you trust these individuals to keep communications confidential and within the best interests of all parties? And do you trust the advice they are providing?  

In most situations, the inner circle will almost always be comprised of your C-Suite or Key management:  

  • CFO/VP of Finance 
  • COO/General Manager 
  • Human Resources 
  • Board and/or shareholders 

The inner circle represents a select group of people who represent the highest levels of competence, responsibility and fiduciary responsibility in your company.

A capable and trusted inner circle can be helpful and vital components to a business sale. The inner circle can advise you on the decision to sell, when to sell, preliminary price range, terms, buyer profile, etc. They can help you prepare and implement a strategic plan to put the sale process in motion. They will be the internal experts concerning their respective roles and responsibilities within the company. And they will help identify and determine which external advisors should be involved, their respective roles and responsibilities and help oversee services rendered.   

Or perhaps you received a big offer for the company out of the blue, when you weren’t even thinking of selling. Your insight team can help decide what to do with it. 

Owners of family businesses also should bring any family shareholders into the circle, as well as the owner’s children if there is any expectation that one or more of them may become either majority or minority owners. 

This may sound like a lot of people to bring into sensitive, confidential discussions, but they all play key roles in the company and they all must understand the reason for selling the business. 

If there are disagreements over selling, they should be worked out at this stage. If you, as the owner and CEO, own at least 51% of the company, this is the time to discuss any covenants or contracts that may govern your ability to sell your interest if the other shareholders are not on board with a full sale. 

It is important to bear in mind that the board is responsible for appointing a CEO, and board members are sometimes shareholders. Depending on the circumstances and whether there is disagreement about how to execute a sale, the board may want to appoint a CEO who they believe is better able to lead the company to exit. 

Due Diligence Phase – Expanding the Team 

Once the inner circle has aligned on the decision to sell, it’s time to move into the planning and preparation phase. This is where you dive into the numbers, ensure your business is ready for sale and bring in additional experts. 

Who Should Be Involved?
In addition to your inner circle, this phase requires a mix of internal staff and external advisors: 

  • Finance or Operations Teams – To provide data such as financial statements, cash flow analysis and projections. 
  • Legal – Attorneys should be involved from the start of this phase through closing. Once a letter of intent is delivered by a potential buyer, the attorney is needed to help:  
    • Structure the deal 
    • Identify and mitigate risk
    • Draft and negotiate the contracts and underlying terms and conditions 
    • Help with the preparation and filing (if applicable) of certain tax returns/regulatory filings  
    • In some cases, run point on all external diligence efforts (financial, tax, legal, IT, etc.)  
  • CPAs –   A third-party CPA firm or fractional CFO can and will play many roles in connection with the sale of a company. CPAs are often the source of financial information being requested for diligence purposes: financial statements, tax returns, key management reports and underlying information supporting the presented information. Buyers of companies have historically used CPA firms to perform financial due diligence, such as a Quality of Earnings (Q of E) report, to not only satisfy lending, insurance or investor requirements, but also to help a prospective buyer make a more informed decision on whether or not to purchase a business.  

Recently, sellers are using CPAs in an expanded role when it comes to selling their business. Q of E reports for sell-side purposes have helped expedite the sale of businesses because prospective buyers have more detailed information to make an informed decision concerning an acquisition. CPA firms with established business valuation practices can help companies estimate a purchase price for their business. They are often retained prior to or during close to help run point on information requests, assist legal in the negotiation of the final terms and in general, to free up time for a business owner to focus on other tasks.  

Lastly, CPAs are also excellent resources to help companies who want to sell, but aren’t quite ready, whether it be for financial or personal reasons. This is commonly referred to as exit planning and has become popular amongst the professional community 

  • Investment Bankers & Brokers – An investment banker or broker can be an invaluable part of your team, despite the perception that their fees may be high. A skilled broker can deliver a significant return on investment by: 
    • Providing real-time market data – They offer current insights into your company’s value, identify key value drivers and highlight potential areas of concern for buyers. Unlike CPA valuation experts who often rely on historical data, brokers generate up-to-date market data from recent transactions. 
    • Identifying prospective buyers – A good broker has the reach to connect with hundreds or even thousands of potential buyers. This is particularly useful for niche markets or companies appealing to private equity firms seeking roll-up acquisitions. 
    • Negotiating the sale – Brokers specialize in negotiating sales prices, terms and conditions. Their expertise ensures you get the best possible deal. 

Think of a broker like a real estate agent for your business. They assess value drivers, attract multiple interested parties, negotiate terms and guide the process to closing—all while providing peace of mind. 

  • Outside Consultants – Depending on your company’s size, industry and internal expertise, bringing in outside consultants during due diligence can be highly beneficial. For example: 
    • A small manufacturer without a COO might hire a fractional COO to assist with operational analysis. 
    • A company lacking a CFO could engage a fractional CFO to handle financial review and planning. 
    • An outsourced IT professional can evaluate technology systems, identify areas for improvement and address potential concerns for buyers. 

Outsourced professionals bring objectivity and a wealth of experience from working with other companies going through similar processes. They can also add much-needed bandwidth to your internal team during this demanding phase. 

  • Wealth Management Advisors – A wealth management professional helps you plan for life after the sale. They focus on ensuring your estate is managed effectively and aligned with your financial goals. Key areas they assist with include: 
    • Money management 
    • Life insurance 
    • Estate planning 
    • Trusts 

Defining your “Happily Ever After Number”
One of the most important questions a wealth advisor will ask is: 

“How much cash do you need after the sale of your business to retire and live the lifestyle you want?”

This isn’t the sale price but rather the amount you’ll have left after taxes, debt payments, professional fees and other closing costs. Your wealth advisor will work with you to calculate this figure and ensure the sale aligns with your long-term financial goals. 

The due diligence phase is where the groundwork for a successful sale is laid. Involving the right mix of internal and external professionals ensures you’re prepared for buyer scrutiny, protects your interests and helps maximize the value of your business. 

Closing Phase – Finalizing the Sale 

The cast of characters during the closing phase of a company transaction is largely the same as during the due diligence phase, but with some minor changes in roles. Generally, the most common addition to the team at this point is a banker who can help finalize negotiations. 

The attorneys, accountants and the C-suite executives are doing the heavy lifting during the closing phase, ensuring all the negotiations and agreements made up to this point are carried out as intended. The buyer’s letter of intent is converted to a purchase agreement, and the money changes hands. 

The wealth advisor and the investment banker have reduced roles at this point, primarily checking in to make sure previous agreements are carried out. 

Typically, employees, customers and vendors are informed of a company sale when the ink is dried on the purchase and sale agreement, though some companies inform employees just before the sale is closed. The HR director at this point needs to be able to inform employees whether their employment will continue and, if so, what will happen with their benefits such as health coverage and retirement plans. 

Questions? 

The ramp-up to a company sale is a complicated process that requires careful communication among all parties in all phases. The timing of certain communications can be as important as the communication itself. That’s why it is important to have a well-selected team of internal and external professionals at the table every step of the way. 

If you would like to discuss your plans for a business sale, contact an Adams Brown advisor.