- Prepare for the sale transaction by considering the variations of deal structure that are reasonable given the current economic and market conditions.
Terms of the sale can make or break a deal. Careful consideration must be given to the availability of outside financing for your specific transaction. Determine how best to minimize the risk involved with term payments.
The vast majority of businesses that change hands each year do so because of financing provided by the owner. Expecting an all cash purchase can severely limit the number of prospects.
Develop and consider alternative transaction structures for the sale. This involves considering the relationship between:
- Price
- Terms
- Classification of the sale: asset vs. stock
- Tax treatment of the sale from both the Buyers and Sellers perspective
Anticipate the Buyers’ reactions and counteroffers and be prepared to respond. Now is the time to make the financial deliberations regarding various tradeoffs in deal structure. This is particularly important in today’s difficult business sales market.
In order to make realistic deliberations regarding alternative deal structures you will need to use an approximate value/ price for your business. When the recast financial statements are completed (#3) they can be used to develop a preliminary estimate of a range of value for the business. This can be accomplished using:
- The same professional service that will provide the detailed Valuation
- Owners understanding of the industry and formulas that use recast financial information and are derived from the sale of similar businesses.
The final price and terms will be decided upon at the conclusion of the next step: the development of a detailed Business Valuation. This interrelationship of the price and terms is part of the Valuation computation. Therefore, tradeoffs between price and terms must be considered in advance of the process of arriving at a final valuation.
