Before the actual process of selling the business begins and potential buyers are approached, this step should be thoroughly prepared—and, above all, in a timely manner. To this end, it is particularly helpful to put yourself in the buyer’s shoes and understand their expectations.
Before the actual sale process begins, it is essential to clearly define exactly what is to be sold. Often, the seller does not wish to include certain parts of the business—such as the commercial property—in the sale. This should be clearly communicated to the potential buyer. In addition, a plan must be in place to separate the non-sold parts of the business from the company being sold in a legally sound manner and with the greatest possible tax efficiency. A buyer will not want to assume any legal or tax risks arising from this process.
Tax restructuring measures aimed at achieving the most tax-efficient sale of the business may involve very long holding periods (currently up to seven years). Therefore, it makes sense to discuss a potential sale and the resulting tax liabilities with a tax advisor at a very early stage and, if necessary, to initiate restructuring measures.
During the actual sale process, the buyer of a company typically conducts a so-called due diligence review. As part of this review, the buyer and their advisors typically analyze the company’s legal, tax, economic, and financial circumstances. The necessary documents and information are now routinely made available to the buyer digitally via a virtual data room. All of the company’s essential legal documents must be available in their entirety in digital form for this purpose, which is often not the case. Older documents in particular—such as the incorporation documents of companies—are frequently not digitized or are missing entirely.
Furthermore, the company’s legal relationships are often not sufficiently documented in writing; for example, relationships with business partners are rarely recorded in writing. Documentation regarding data protection within companies is also frequently inadequate.
The completeness of the documentation should therefore be reviewed well in advance and supplemented if necessary. Once a potential buyer has discovered such gaps, rectifying them is often significantly more difficult and can lead to unnecessary delays in the sales process. Furthermore, the question arises as to what risks result from incomplete documentation and who bears them.
The buyer will also want to analyze the company’s financial data. In particular, the most recent annual financial statements and current monthly cash flow statements should be available. In the normal course of business, the preparation of the annual financial statements is often delayed. However, this is highly detrimental to the buyer’s due diligence, so the annual financial statements should be prepared as quickly as possible. In addition, reliable interim figures should also be available.
In addition to historical figures, however, it is also important for the potential buyer to look toward the future. To this end, the seller should prepare reliable income and balance sheet projections.
Providing all necessary documents and answering questions from the potential buyer involves a considerable amount of work for the seller. This is especially true given that day-to-day business operations continue. The seller should therefore consider in a timely manner which employees will be needed for this and brief them on the sale process.
In addition, any uncertainties and critical issues should be resolved as much as possible before the actual sale process begins. This includes, for example, resolving ongoing legal disputes and settling warranty claims. A buyer will typically not want to assume the resulting risks. It should also be examined whether any pension obligations can be outsourced, as the buyer of a company generally does not wish to assume them.
Last but not least, selecting and involving the right advisors with transaction experience early on is also part of proper preparation for the sale of the company. With these steps in place, the chances of a successful and swift sale of the company increase significantly.
