Important Considerations when Selling a Silicon Valley Business

Selling a business is a major life decision. There may very well be a lot of emotional and financial attachment tied up in a business you have built from scratch. To ensure a successful sale, it is important to take proactive steps to maximize the value of your company and find the right buyer.

Here are seven important steps to take when preparing to sell your Bay Area business:

Plan Early

Business sales do not happen overnight. Typically, the process of preparing the company for sale, finding a buyer and closing the sale can take a year or longer. For this reason, it is important to start planning your exit strategy as early as you can.  The more time you have to prepare, the better the chances of locating an ideal buyer. In addition, business negotiations are best done from a position of strength; for example, if your goal is to sell your Silicon Valley business by this time next year, you are in a much better position than if you need to close by the end of next month.

Organize your Books

The last thing prospective buyers want to deal with is poorly organized books and records relating to both the finances of the business and its ongoing legal and business affairs. Buyers need to be able to trust that the seller is being fully transparent and not trying to hide anything. If your records are not properly organized, buyers will become skeptical and begin questioning nearly everything else about the company, even when you give seemingly plausible answers. As a seller, one of your top priorities should be to make it as easy as possible for your buyers to perform due diligence. Organize your books, be as transparent as possible, and create a comprehensive and efficient due diligence system for prospective buyers.

Analyze Technological Systems

Another area buyers will look closely at is your communications and technological systems; this is especially important for a company based in Silicon Valley. With technology continually evolving, it would be a good idea for you to analyze the types of systems you have in place for internal communications, tracking the finances of your business, interacting with your customers and, if your business involves intellectual property, protecting it.  Having each of these basic business systems be in place and be functioning properly will give a b possible purchaser a better impression of the overall business operation than if they are not.  Before making any changes in anticipation of a possible purchase, it would be a good idea to consult with an experienced business attorney to see whether investing in such changes will add any significant value to the business.  Along the same lines, be sure your company networks, if you have them, have adequate security and protection from outside access. Particularly if your company stores sensitive customer data (such as credit card numbers), your buyer is going to want assurance that you have taken strong measures to secure your company’s most sensitive data.

Know the Value of your Business

After you have cleaned up your books and analyzed your internal systems, it is time to place a fair and reasonable value on your business. You may believe you have a good idea of what the company is worth, and maybe you have a particular price in mind that you will not go below. However, there are a number of other ways to learn more certainly how much your company is worth.  Often companies in different industries sell for some multiple of gross revenues or a variation of that used by business experts, earnings before interest, depreciation and amortization (EBIDA), and these valuations can sometimes be found in trade journals or through communications with colleagues in your area of business.  Sometimes it is may also be valuable to have a market valuation performed by an independent third party though these are often inexact and may not be all that helpful. Because of the many complexities involved (e.g. location, management, employees, unique market position, sales, profit, etc.), it can be difficult to properly value a business.  A variety of approaches to ascertain value will give you a good benchmark from which to negotiate, and help justify your asking price with prospective buyers.

Consider Your Role after the Sale of the Business

Selling your business is a major life change, and you need to give some thought to life after you are no longer the owner. Do you still want to work with the company? If so, do you want to stay on temporarily during the transition or long term? If you do want to stay, what role are you best suited for in the new organization? Should you be an employee or an independent contractor?  What are the tax implications of each of these routes?  The answers to these questions will help determine how you prepare for the sale of your business.  Consulting with an experienced business attorney can help you explore these possibilities and plan for your life after the sale.

Do Not Go It Alone

Business sales are highly complex transactions. As such, it is important to assemble a team of specialists to help ensure a smooth and successful sale. At a minimum, your team should include your accountant and business attorney. You may also want to consider other professionals that can help with marketing the business sale and other essential tasks. If you take the right steps and assemble the right team, you will be positioned to nail the sale of your Silicon Valley business and ride successfully into the sunset.

Jeffrey Miller is a Palo Alto business attorney and member of the Palo Alto Area Bar Association (PAABA). He provides skilled guidance on business transactions and all other business legal matters. To find out how he can help you purchase or sell a business, call attorney Jeff Miller today at (650) 321-0410 or email him at jeff@jeffmillerlaw.com.