Do you want to sell your company?
Selling a company is usually a long project in which the individual steps must be carefully considered to lead to success. Make use of the practical experience.
Evaluation of the company when selling
An important question: How can the company be rated so that a sale is worthwhile. What conditions do you have to meet with the interested parties?
Which questions have to be answered when selling a company?
Where can you find the right advisor? What are the options. We have the answers.
Selling a company: How can a company be sold efficiently? Your next steps quickly and safely … Advice
Do you want to sell your company? Every year many owners face a crucial question. How can I sell my business and get the best possible price? Certain basic information is necessary for this. If you don’t want to go looking for it personally, it’s best to ask:
1. an M&A expert,
Fees are freely negotiable, no fee schedule. Further information from HSC management consultancy.
Source: HSC Management Consulting
2. the tax advisor or Auditors
Excerpt from the fee schedule: For individual activities listed in the StBVV (such as checking the tax assessment, participation in examinations) or in cases in which there are no sufficient indications for an estimate of the object value, the tax advisor uses the time fee (§ 13 StBVV). It is calculated based on the time required to process the order and, unless a higher amount has been agreed separately, is between 30 and 70 euros per half hour or part thereof.
Source: Federal Chamber of Tax Advisors
3. a lawyer
If you as a private person need advice from a lawyer or information, the fee for an initial consultation may not be higher than 190 euros plus VAT, i.e. a total of 226.10 euros (Section 34 RVG). If you need an expert opinion to assess the legal situation, you have to pay a maximum of 250 euros plus VAT. However, the lawyer can agree to a higher fee for advice with you. Without them, the statutory minimum fees will remain.
You specialize in these areas and also have excellent contacts. Through this they get to know potential buyers and bring the future business partners together. The right time, the reason for the sale and the achievable profit are just as important.
Company Sale Instructions:
- Step 1: Selling the Company: Possible Reasons and Problems
- Step 2: Wait for the optimal time to buy a company
- Step 3: carry out a company evaluation
- Step 4: Decision to hire a corporate broker / M&A consultant
- Step 5: Gather documents in the synopsis
- Step 6: Offer a company – company exchange
- Step 7: Select potential buyers
- Step 8: conduct sales pitches
- Step 9: re-invest profit / selling price
Step 1: Selling the Company: Possible Reasons and Problems
There are many parameters that can affect a company’s selling price. The worst case scenario is selling out of an emergency. A company sale needs to be well thought out and requires strategic planning. If there is not enough time, the sales price achieved is often lower than with a well-planned takeover. Good planning increases the possibility of achieving a good sales price. The experience of the M&A experts shows that a well-planned sale takes between three and five years.
Overview: Key reasons and problems when selling a company
There are various reasons for selling a company. The professional demeanor of the owner can influence the price. On the other hand, distress sales that potential buyers are aware of reduce the achievable amount, regardless of the current company valuation. If the entrepreneur wants to sell his company, he uses long-term strategies. They are based on medium to long-term planning and give him the necessary peace. The introduction begins three to five years before the actual sale. During this time he can sustainably increase the reputation of his company in the industry and present sales figures. If he has to publish his annual financial statements in the Federal Gazette, he also increases his chances of selling a company. In any case, the company owner should create a checklist to sell a company, in which he fixes all points with the help of his tax advisor. He also takes into account tactics with which he can increase the company’s value.
What does sell company mean?
Definition: “Selling a company is a process in which a company is offered for sale and interested parties are sought. Reasons for this can be diverse economic interests of the company to be sold. “
Why do you want to sell a company?
1. Reached retirement age
After a long working life, the owner is looking forward to a quieter old age. Now he wants to have time for his family and hobbies. At the same time, he secures his time as a pensioner with the sales proceeds that he receives for his company. If this is not enough at the time of the assessment, then it needs a goal-oriented strategy.
2. The new generation is coming
Almost half of the family-run companies are handed over to family members who continue to run the medium-sized companies. The successor pays the owner with a one-off payment or arranges a recurring payment in the form of a monthly installment or annuity payment. Alternatively, the shares that the family members are to receive can be transferred to a corporation or partnership. In terms of taxation, the anticipated succession or a gift can also come into question, but these should be discussed with a lawyer and notary. Company valuation also plays a major role here. This generation change has decisive advantages. The new managing directors are introduced to the value-adding know-how and the regular customers in a targeted manner and without hurry. The workforce also feels positively addressed by a targeted change in management. She has known the new decision-makers for years and can adapt quickly and easily.
A few valuable questions can help in making a decision:
Which of the family members can best run the company successfully?
Should another member or an external specialist be involved in the tour?
What qualifications has the candidate within the family acquired for these challenges?
How can any deficits be compensated for until the final handover?
How can the retiring owner best help his successor after the handover?
3. Unfavorable earnings situation or impending bankruptcy
If there are economic problems due to poor earnings, the company loses its reputation and the required liquidity. If you want to sell the company, you should therefore choose the right time. Consultants, auditing firms and specialist lawyers are the best choices. Sale before or after the renovation? If the company is facing a necessary restructuring, it depends on the financial possibilities of the entrepreneur. First of all, he has to have his company evaluated. If the owner can bear the renovation costs, he will achieve better sales proceeds with the healthy company, since the buyer can count on a profit from day one. If the potential buyer had to bear the difficult to calculate costs, then a discount has a sensitive effect on the purchase price. The federal government, the federal states and the EU offer interesting funding programs for redevelopment. Before applying, however, the entrepreneur should commission his tax advisor to draw up a business and restructuring plan.
Competitive situation, professional reorientation and death.
4th Bad competitive situation
Entrepreneurs position themselves on the market with their company and their products. As long as you realize profits, your business will grow. However, there is a risk of product piracy, which is also associated with dumping prices for copied products.
5. New goals and ideas
After a few years, the entrepreneur finds a new idea very interesting. He separates from his company and invests in a new industry. This challenges him more and promises higher yields.
6th Sudden death or incapacity
This case can occur at any time. Therefore, the entrepreneur needs an emergency plan that he should discuss with his lawyer. If necessary, this strategy must be legally secured by a will.
There are some crucial questions here:
– Who takes on short-term responsibility?
– Who inherits the company after the entrepreneur’s death or in the event of his legal incapacity?
– How is the sale organized after the managing director dies?
– Who will act as interim manager until the succession has been clarified?
What mistakes should be avoided when selling your company?
If you want to sell your company, you can make a lot of mistakes in negotiations. To avoid this, he should include all of the points in a company selling checklist.
1. Choosing the wrong time to sell
If you want to sell your company quickly, you sometimes develop specifications that cannot be implemented. If these cannot be implemented immediately or after a short time, an irrational strategy follows. Expert advisors protect the entrepreneur from these problems, which can also lead to legal consequences.
Since the decision-makers do not have the time, they fall back on wrong or insufficient figures in the negotiations. The potential buyer feels misled while checking the documents and withdraws from the negotiations.
2. Dependence on regular customers
Every company depends on its regular customers. You contribute significantly to the success of the company and want to be treated with respect.
If major customers feel especially connected to the departing entrepreneur, they can migrate to the competition after switching. The buyer of the company therefore has an increased interest in a purchase object whose regular customers make a substantial contribution to the turnover in the long term. This requires many medium-sized customers instead of a large one who can also dictate prices.
3. Professional management consultants are not appointed
There are costs involved in selling a company. These are caused, for example, by professional management consultants. There are company owners who want to save these expenses. However, they do not take into account that the professionals not only have the technical competence to be able to evaluate companies. You also know many prospective buyers who turn to the management consultant with confidence. Many do not want to appear openly and therefore rely on the offers of the intermediaries.
The management consultants also prepare comprehensive and informative documents while the owner concentrates on his day-to-day business. These documents represent the company in an economically realistic manner and thus increase the probability of a successful sale at an acceptable purchase price. Who is best to evaluate the company and when? The entrepreneur should allow four to five years for his objective decisions. During this period, the tax consultants and external consultants develop a strategy with which the company value can be increased. In detail, they concentrate on fixed and current assets. The company’s intangible brand value also makes a significant contribution.
Step 2: Wait for the optimal time to buy a company
Monitor your industry. What developments are there? Can be seen whether there are other companies considering a sale. Is there perhaps someone among your suppliers, customers or partners who might be interested? What is the economic situation like? In times of crisis, a company certainly doesn’t sell well. However, if you are forced to sell by external or internal influences, it is best to have the sale accompanied by an M&A consultancy. A large network and good negotiating skills are particularly important in order to be able to sell your company.
Step 3: carry out a company evaluation
The catchphrase “company valuation” is closely linked to the aspects of succession and company acquisitions. This is a very important step. If you make a mistake here, you will not achieve the optimal sales price in the subsequent sale. Both are scenarios in which different parties with different interests meet. Every side needs the optimal result. So this is to a certain extent a matter of negotiation. The negotiation of these interests is not infrequently like a game of poker: One party wants to sell its company, perhaps even its life’s work, for the best possible price. And that is precisely one of the sticking points. It is not uncommon for the seller to realize at this point that it is his life’s work. The other party wants to acquire a ‘valuable’ company that will make a profit now and in the future. Whereby what is valuable? Nobody likes to buy “work”. At best, the acquired company runs independently and only generates profits. Both have one thing in common: they need a price for the company. A price that represents the company’s value for both sides. But that is often very difficult and a long process. So the company that supplies or should be bought, valued. There are various methods for this which can also be found in the literature.
Step 4: Decision to hire a corporate broker / M&A consultant
Choosing the right M&A advisor? We have put together some information here:
What should the entrepreneur consider when choosing an M&A advisor?
But which one should you choose. Here the entrepreneur can turn to his lawyer, the tax consultancy or to trustworthy institutions. This also includes the German Institute for Corporate Succession. There are valuable checklists on the website. Hiring the right management consultant has a decisive impact on costs. There are different models here, but they have advantages and disadvantages. Those who only want to pay in the event of success choose the fee on a success basis. However, if you are looking for a safe and very reliable variant, you can dedicate yourself to the consulting and success fee model.
1. Fee based on success – no payment without successful completion
The consultant can act like a recruiter. The company only has to pay the commission if it finds a suitable candidate. The risk is completely passed on to him. However, the management consultant only concentrates on a short-term sale, with which he minimizes his cost risk and achieves the highest possible return. If he hardly sees any opportunities, the priority of the order drops and the entrepreneur can only sell his company later or not at all through him. That is why the mostly serious consultants do not get involved.
2. The absolute alternative – consulting fee and success commissions
When choosing a consultant, the entrepreneur should focus on a professional who demands both a consulting fee and a commission for success. Here he can assume that his sales intentions will be realized taking all options into account. The consultant is paid in full for his work. For this he receives his success commission as an incentive, which motivates him additionally. In this way, he can – even if it does not come to a conclusion – achieve his operating profit and cover his operating expenses.
3. What advantages does the consulting fee with a success fee offer?
The process also offers some advantages for the seller. In this way, he can check the relevant service components at any time. At the same time, he can decide at any time to continue or terminate the sales negotiations. In the latter case, he only pays the consultant for the tasks performed up to this section.
Step 5: Gather documents in the synopsis
Company exposé: If the M&A expert is commissioned, the company data is compiled. The representation of a current situation is referred to as an “exposé”. Detailed information such as company key figures, a situation report on the economic situation of the company and the industry as well as professional images of the company should be the content of a company exposé. Every company sale begins with the analysis and presentation of the company, which is explained in detail in a company synopsis. After all, you have to provide enough information to potential buyers so that they can find out whether they are interested in the company enough to hold further discussions.
How is the sale prepared?
As soon as the entrepreneur has found his advisor, the planning of the sale begins. All criteria are recorded in a tried and tested company selling checklist and processed one after the other. In this context, the commissioned tax or auditing company carries out the targeted company valuation together with the entrepreneur.
Documents also have to be drawn up. They include – the exposé for each part of the company, – a target analysis, – the actual and target plan figures and – the steps to optimize the sales strategies. The owner should submit a sales offer to at least two interested parties. Before the first documents are handed over, legally binding information is obtained. Here, for example, Creditreform or Schufa are ideal. Trade credit insurance is also a reliable source.
Step 6: Offer a company – company exchange
When will the offer be placed?
Once all the initial processes have been completed, the anonymous placement takes place. This is done by the consultant so that the seller can check the incoming offers and make a pre-selection. But there are also alternatives. In the last few years, online company exchanges have become established. There you will find the brief synopsis of the companies in a clear presentation. You can search for industries, regions and sales prices.
Step 7: Select potential buyers
Finding the right buyer is not an easy task. Experience shows that this can take several months to three years. You should always consider several buyers at the same time in order to have a “backup option”. If the contract does not come about, you still have alternatives. Check the liquidity of the prospects before handing over information about your company. Leave room to negotiate, but stick to a reasonable price, especially with regard to future company revenues.
What costs arise during the planning and negotiation phases of the company sale?
Costs also arise during negotiations that depend on target-oriented criteria:
– Number of selected negotiating partners
– Place of the hearing. This can also take place at the buyer’s place if it is a large corporation that is buying a small or medium-sized company. Alternatively, the consultant is based in another federal state, where the negotiations can take place so as not to unsettle your own workforce in advance.
– Duration of the negotiation. It can last one or several days.
– type of conversation. They can be done over the phone, via internet conference, or in person.
– Traveling expenses. If the negotiations take place in another city or even on another continent, there are also high flight, travel and accommodation costs.
Step 8: conduct sales pitches
Scenario: The entrepreneur, his advisor and a lawyer meet with the potential buyer. He also brings his team with him. The conversation must be prepared in detail. All participants in the conversation are already familiar with some documents and documents. If the buyer is interested in the acquisition, he submits a written declaration of intent. It is also called the Letter of Intent and represents a declaration of intent which, however, does not unfold the rights and obligations of a preliminary contract. The preliminary contract, on the other hand, is a legally binding obligation that would oblige the parties to conclude a main contract. This is only formulated after the detailed examination. If you want to sell your company, you need additional documents for these discussions, which you also have with you as certified copies:
– The tax assessments for the last three to four years. This also includes the bank receipts with which the transfers of the contributions are documented.
– Accounts receivable and accounts payable lists.
– Accounts receivable and accounts payable for the most important business customers.
– Balance confirmations from banks and the most important institutions.
– Analysis of the company’s strengths and weaknesses.
– Extracts from the land register if the company building was acquired by the customer.
– Energy pass for every building, provided it is owned.
– Confirmations from the lawyer for all open cases that he leads on behalf of the client.
– Balance confirmations and other documents from the tax advisor on the open items
as well as individual and general value adjustments
and – inventory lists.
If the letter of intent is available, the entrepreneur hands over the other important documents to the future buyer and also allows a tour of the company. If machines are purchased, a sworn expert is also used, for example. This fact check is known as a due diligence DD.
Due diligence reviews
The buyer’s team, which also bears the costs for the inspection, checks whether the actual status corresponds to the book. It is about economic, financial and technical aspects. Furthermore, environmental features are taken into account. If, for example, a machine system from the 1980s is sold during the tests, the buyer must take into account the refinancing costs. The difference between the purchase price of the new machine and the sale or scrap value of the old one reduces the company’s purchase price. These DD due diligence checks are primarily paid for by the buyer as this is how he can define the guidelines.
The costs of this phase include, for example:
– the valuation of the company according to the discounted earnings method,
– the due diligence check,
– the invoices of the experts,
– the cost notes of tax consultants and lawyers,
– the letter of intent letter of intent of the buyer as well
– the notary fees for the processing of the purchase.
Step 9: re-invest profit / selling price
Hopefully, if you’ve negotiated well, the sale of the company will result in a larger amount of capital. The question now is whether you want to reinvest the capital or improve your wok-life balance. There are certainly enough suggestions for this. But don’t forget the tax office when you look at it. As always, the Dear Colleagues sat “invisible” at the table during the sales talks.
Conclusion on the company sale
Selling a company is a matter of trust. Invest enough time in the search for a suitable successor advisor and attach importance to a detailed planning phase. Trust the experts in this field. This is how you avoid hidden cost traps and avoid nasty surprises.