How to prepare a business for sale

Mainstream

Preparing a business for sale is not just about finding a buyer. It is a strategy to maximize the transaction value and minimize risk all the way.

The question is not how much you want to sell your business. The main question is what price an informed buyer is really willing to pay and how to make sure that the deal does not fall apart before closing.

Therefore, effective preparation for sale begins with three checks:

What legal, tax and operational risks reduce the cost.What transaction structure the market considers optimal for this type of asset.

If these three issues are not resolved before entering the market, the owner risks getting a low price, protracted negotiations or a break in the final stage of the transaction.

When you need to prepare your business for sale systematically

Systematic training is required if:

• The owner plans to leave the business in full or in part.
• It is planned to attract a strategic or financial investor
• Business prepares to merge with another company
• The assets are to be transferred to a joint venture
• External capital for development is needed
• Business valuation must be verified by independent due diligence
• The owner is considering several alternative exit scenarios
• The transaction is international and requires a cross-border structure.
• Not the whole company is sold, but a separate business unit.
• preparation for the competitive sale process (auction, tender)

The mistake most owners make

Many owners start with the question:

To whom and for how much can I sell the business?

That's the wrong first question.

The right question is:

What in my business reduces the value of my business in the eyes of the buyer, and how do I eliminate it before I start negotiating?

Sometimes the best sale starts not with finding a buyer, but with internal restructuring, clearing assets, closing corporate and tax risks, allocating non-core assets and building transparent reporting.

Preparing a business for sale requires strategic surgery, not marketing packaging.

Step 1. Determine the objectives and criteria for a successful transaction

The first step is not to evaluate, but to clearly define the owner’s goals.

Key questions:

• exiting the business in whole or in part
• deal-horizon
• minimum-price
• terms and conditions of installment and earn-out
• Maintaining a management role or leaving
• confidentiality
• permissible jurisdiction
• tax implications for the seller
• willingness to provide guarantees and indemnities
• attitude to retaining the brand and team

Without answers to these questions, even a perfectly prepared transaction may not bring the owner the planned result.

Step 2. Conduct internal due diligence

Before the buyer comes in with his check, the seller must conduct his own.

Internal due diligence covers:

• Corporate structure and ownership history
• structure
• intellectual property
• principal commercial contracts
• employment
• regulatory licenses
• litigation and administrative
• Tax history and potential additional charges
• financial reporting and accounting
• performance
• Environmental and sanctions risks
• state of IT systems
• Dependence on key employees and counterparties

The purpose of internal verification is to see the business through the eyes of the buyer before he does it himself.

Step 3. Address identified problems and increase cost

The problems found in the self-examination stage do not necessarily make a deal impossible, but they do affect the price and negotiating position.

Before contacting the buyer is:

• Resolve corporate gaps and mishandling of assets
• shut down unused companies
• Eliminate Tax Risks
• Renew or re-sign key contracts
• Establishing relationships with key employees
• transfer
• allocate non-core assets
• Optimize operational processes
• to bring reporting to standards that are understandable to the buyer (IFRS, US GAAP)

Each problem that is fixed reduces the space for price trading and increases the confidence of the buyer.

Step 4. Evaluate the business and determine the price range

The valuation should not be an abstract calculation, but a realistic benchmark, confirmed by the market.

It is important to prepare:

• financial model and forecast
• Calculation of normalized EBITDA
• analysis of comparable transactions
• discounted cash flow valuation
• net asset analysis
• market-multiplier

The price should be formed as a range that takes into account different scenarios of the structure of the transaction, and not as a single figure.

Step 5. Prepare an information memorandum and presentation materials

A professional information memorandum is not an advertising booklet, but a structured description of the business that gives the buyer the basis for making an investment decision.

The document should include:

• business model description
• Analysis of the market and competitive position
• financial
• details of assets and liabilities
• operational structure
• legalism
• Risks and ways to minimize them
• forecast
• deal-sheet

The materials are prepared in several formats: teaser, executive summary and full memorandum.

Step 6. Structuring the deal: Shares or Assets, Taxes, Jurisdiction

The choice of the structure of the transaction directly determines the economy for both parties.

Analyzed:

• sale of shares (shares) or sale of assets
• tax consequences in the jurisdictions of the seller and the buyer
• Possibility of using holding structures
• Application of Double Taxation Agreements
• transfer
• Retention or termination of the operating company
• mechanism of assurances, guarantees and indemnities
• Regulatory restrictions and the need for harmonization
• Payment structure, including escrow and earn-out

An error in the structure of the transaction can turn a profitable price into a loss-making transaction for the seller.

Step 7. Forming a team of consultants

International business sales require the coordinated work of several specialists:

• Corporate lawyer (transaction structuring, SPA, negotiations)
• tax adviser
• Financial Advisor/M&A Banker
• auditor
• due diligence consultant
• field-expert
• In some cases, a PR consultant and compliance specialist

The team should be built so that all its members work on a common strategy, and not give scattered advice.

Step 8. Prepare the company for due diligence of the buyer

The buyer will inevitably conduct their own check. The seller must prepare for it in such a way as to speed up the process and maintain control over the transaction.

For this purpose, it is formed:

• Secure data room (virtual data room)
• complete set of corporate, commercial, financial and regulatory documents
• description of the identified risks and measures taken to minimize them
• Legal Memoranda on Key Issues
• timetable and rules for the provision of information

A well-organized data room increases customer confidence and reduces exclusive negotiation time.

Step 9. Develop a strategy for negotiations and protection of interests

Before the start of negotiations, it is necessary to determine:

• target and limit terms of the transaction
• List of non-negotiable points (non-negotiable points)
• guaranteeing
• limits of seller's liability
• Time limits on indemnities
• terms and conditions of installment
• settlement
• lossless exit mechanisms

Negotiations that are conducted without a predetermined strategy almost always end in concessions on the most sensitive points.

Step 10. Prepare a draft of a Sale Agreement (SPA) and related documents

In international M&A transactions, the first draft of an SPA is usually prepared by the buyer. But the strong position of the seller suggests that he is also approaching this stage prepared.

The following shall be considered in advance:

• SPA structure and key definitions
• mechanism for determining the price and adjusting it
• checklist
• Disclosure of information (disclosure)
• limitation of liability
• Closing conditions (conditions precedent)
• Transitional obligations of the parties
• Post-closing settlement mechanisms
• Shareholder agreement (if the seller remains with the share)
• Transactional documentation on escrow and earn-out

Qualitative preparation for the SPA stage allows the seller not to defend himself, but to dictate the standards of the transaction within reasonable limits.

Sale of shares or assets: pick

The choice does not depend on general preferences, but on the specific structure of the business, its obligations, tax environment and the goals of the buyer.

How to strengthen your position before the start of the sale process

The best deal is prepared 12-24 months before the actual market entry.

Long-term training is desirable:

• cleanse
• Showing sustainable revenue growth and EBITDA
• diversifying the customer base
• Removing dependence on one contractor or employee
• align with international standards
• implement a transparent management system
• Develop a strong management team
• settle
• Protecting Key Intellectual Property
• ensure compliance with sanctions, anti-corruption and industry standards

The business should not look like an object that needs to be sold urgently, but as an asset that the seller is ready to transfer in the optimal form.

Common Mistakes in Preparing a Business for Sale

1. High expectations for price without a market justification

The buyer does not pay for the past, but for the future. The price must be confirmed by the financial model and the market.

2. Unprepared financial statements

The absence of normalized EBITDA, audit or management reporting dramatically reduces trust and price.

3. Hiding or silencing problems

The buyer will find them in due diligence. Concealment kills the transaction or gives rise to post-closing claims.

4. Trying to sell a business without a team of consultants

Selling a complex business on its own, especially internationally, almost always leads to lost value and legal errors.

5. The wrong structure of the transaction

The choice between a share deal and an asset deal, as well as the jurisdiction of the transaction, affects the total amount that the seller will receive after taxes.

6. Ignoring compliance risks

The presence of sanctions, corruption or regulatory risks makes the transaction unacceptable for many buyers.

7. Delaying preparation

A quick sale always gives the buyer an advantage. Planned preparation leaves the seller room for maneuver.

8. Lack of exit strategy for the owner

Not knowing what to do after a transaction can lead to incorrect terms of the earn-out and conflict with the buyer.

Owner's checklist

Before entering the market, you need to answer 15 questions:

What exactly is for sale: 100% of the business, controlling interest or interest?Who is the legal seller: Are key assets consolidated within the company being sold?Are there unresolved corporate disputes or encumbrances?What contracts require the consent of counterparties when changing control?Are financial statements audited?What are the main tax risks and possible additional charges?What licenses are critical and transferred during the transaction?Does the business depend on key employees and suppliers?What is the transaction horizon and acceptable settlement structure?Does the data due room for external diligence?What are the guarantees to provide for the seller and the buyer with the right to negotiate and conduct the transaction? How will the proceeds of the transaction be distributed after taxes?What does a strong strategy of preparing for the sale look like?

A strong strategy usually includes five levels:

1. Diagnostic & Value Gap Analysis

Internal due diligence, current value assessment and gap detection.

2. Value Enhancement

Measures to increase the value of the business before entering the market.

3. Documentation & Packaging

Preparation of a memorandum, financial model, data room and presentation materials.

4. Process & Negotiation Strategy

Planning the sales process, identifying potential buyers, developing a negotiation strategy.

5. Execution & Closing

Structuring of the transaction, preparation and approval of the SPA, legal and tax support of the closing.

Without the fourth and fifth levels, the first three may not work.

FAQ

When should I start preparing a business for sale?

Optimally - 12-24 months before entering the market. This allows you to eliminate risks, improve performance and safely go pre-sale due diligence.

Can I sell my business without audited accounts?

It is possible, but it almost always reduces the price and range of potential buyers, especially in international transactions.

More importantly: price or structure of the transaction?

For the final result, the structure is more important. Even the high price can be negated by unprofitable taxes, installments and unlimited guarantees.

Do I need to hire an M&A consultant?

When selling medium-sized and large businesses, especially in a cross-border context, a team of consultants is not an expense, but an investment in maximizing net revenue.

What if the customer insists on long-term due diligence?

Pre-prepared data room and transparent position allow you to control the timing and not let the process drag on.

Can I sell a business if I have a lawsuit?

It is possible if the disputes are disclosed, evaluated and taken into account in the structure of the transaction. Hidden debate is one of the main reasons for the M&A breakup.

Which is better? Selling stocks or assets?

It depends on the specific situation. In general, the share deal is easier for transferring the entire business, the asset deal is easier for selective sale and minimization of transfer of liabilities.

How to protect yourself from the buyer’s claims after the transaction?

Through clear warranty limitations, disclosure, time limits, thresholds and cap liability in SPAs.

Can I still be a manager after the sale?

Yes, this is often provided for by a pay-out or separate agreement. But the relationship should be recorded as specifically as possible.

Related services

M&A, Joint Ventures & Strategic Investments International Corporate Structuring & Governance Tax Structuring & International Tax Advisory Cross-Border Transactions & Deal Management Corporate Investigations, Due Diligence & Compliance Commercial Contracts & Transaction Documentation Wealth Structuring & Asset Protection International Regulatory Risk & Strategic Advisory

Related material

How to prepare a company for due diligence of a Share Deal or Asset Deal buyer: How to structure an M&A transaction with an international element of Assurances and Guarantees in SPA: How to Protect Intellectual Property Before Selling the Company Tax Consequences of Going Out of Business in Different Earn-out Jurisdictions and Deferred Payments How to create and manage a virtual data room Joint ventures as an alternative to the full sale Mistakes in selling a family business to an international investor

Conclusion

Preparing a business for sale is not a one-time event, but a strategic project that requires time, multidisciplinary expertise and a verified sequence of actions.

The seller’s strong position is based on internal audit, risk elimination, proper assessment, thoughtful transaction structure and professional management of the negotiation process.

In international M&A, the winner is not the one who gets to market faster. The winner is the one who, before contacting the buyer, already understands what the deal will look like, what will happen after it and how to maximize net revenue without losing control over the process.