If you're a business owner, chances are you've been getting calls left and right from parties interested in buying your company. It could be private equity groups or bigger businesses trying to expand their reach. And there's nothing wrong with being intrigued and starting a conversation. But before you dive into any serious talks, there are a few things to get in order.

The NDA Non-Negotiable

First things first, make sure both parties sign a confidentiality agreement or NDA before swapping any financial or business-specific info. Usually, the interested party will send over their standard NDA. While these might seem pretty boiler-plate, you should keep your eye on a couple of points:

• Confidentiality Term: Look closely at how long the other party is required to keep things under wraps.
• Permitted Disclosures: Check if any loopholes allow the buyer to share your info with third parties.
• Non-Solicitation: Watch out for language that prevents you from talking to other interested parties while in discussions

The bottom line? Have your attorney look over these documents before putting pen to paper. Some business owners hesitate to let others know they're considering selling but remember, attorneys and CPAs are bound by client confidentiality (unlike bankers).

The "Ready, Fire, Aim" Problem

Another common issue in these situations is adopting a "ready, fire, aim" mentality. For one reason or another, lots of business owners jump into discussions with prospective buyers, sign NDAs, and hand over financial details to complete strangers without touching base with their trusted advisors. It's only after they get some feedback from the interested parties that the owner realizes they need some help.

More often than not, the financial details the owner provides do not paint an accurate picture of the true earnings or cash flow that should be shown to a potential buyer. Plus, the owner might not have a solid grasp on what their business is actually worth or what they'd net after taxes from a sale.

The Pre-Conversation Checklist

So, here are my recommendations for business owners who are willing to talk to prospective buyers: call your trusted advisors before you start any conversations. If you are open to chatting with potential buyers, you should be just as open to spending some time beforehand making sure you know your current business value, how you can boost that value with some strategic planning, and the impact a sale would have on your life – both financially and personally.

Most people who own a business have never sold one before, so they're not familiar with all the ins and outs of the process. For the majority of business owners, their company is by far their most valuable asset, so it makes sense to do some planning before any talks with prospective buyers.

In short, if a potential buyer contacts you and you are willing to entertain a conversation, take the following steps first:

1. Consult with your go-to advisors.
2. Get the confidentiality agreements squared away.
3. Make sure you have a solid handle on your business's value and what a sale would mean for you.
   
   

Maximize M&A Opportunities with Lutz

By taking these proactive steps, you'll be able to confidently navigate the process and make decisions that align with your long-term goals. Please contact us with questions. The M&A advisors at Lutz would be happy to help you prepare for a conversation with a potential buyer.