Selling a private company? Here are 8 steps you must take beforehand!

It should be noted that the acquisition of a private company is almost always done in one of two ways:

Stock Purchase

meaning buying all shares of the company, including its assets and liabilities, in full. In this case, if the company is sued after the sale, the buyer steps into the shoes of the seller.

Business Purchase

purchasing a part of the company, such as buying the operations of a specific brand, including production facilities, customer and supplier lists, contractual agreements, intellectual property, and more. In such transactions, the stock is usually purchased separately.

What are the steps that must be taken in order to sell a company at a high value?

In order to ensure that the sale of a private company is carried out at maximum value, it should be done after careful planning and not under time pressure. Such planning may include, among other things, the following actions:

Sell During Business Growth, Not Decline

When a specific sale date can be set, for example, towards the retirement of the majority shareholder, it is important to ensure that the sale occurs while the company is experiencing growth in sales and activity, rather than the opposite. If the company shows a decline in business activity, it will raise concerns for the buyer and result in a lower valuation. The assessment of value itself is highly influenced by the expected future growth rate.

Increase Profitability and Reduce Expenses

In every company, there are expenses that can be reduced or even eliminated, so that the company's financial reports show better results.

Choosing the Buyer

When there are several potential buyers, each one should be examined, and a decision should be made with whom to proceed with negotiations. When choosing the buyer, it is preferable to opt for a financially strong entity that can fulfill its commitments to the seller. In addition, it is advisable to prefer a buyer whose business/operations are synergistic with the sold activity. Such a buyer will pay more than another buyer.

Stock Tuning

Companies tend to keep slow-moving inventory until they can sell it at a higher profit compared to the cost of liquidating slow inventory. Towards the sale of the company, as much of this inventory as possible should be sold, even at a 'price' of low-profit sales. The presence of slow-moving inventory can be interpreted as a slowdown in the company's operations.

Approval of Financial Reports

One of the signs of a company's strength and reliability is the approval of the financial reports close to the end of the year. In addition, the audited financial reports are often presented as part of the sales transaction, hence the importance of up-to-date and audited financial reports as much as possible.

Cleaning Up Financial Reports

Sometimes there are historical surpluses in the financial reports that affect the 'aesthetics' of the reports and sometimes even affect the financial ratios of the company. An example of this could be a loan from the controlling shareholder that is clearly not going to be repaid. In such a case, it is advisable to 'clean up' the financial reports and convert the loan into equity.

Increasing EBITDA

One of the important parameters measured when selling a company is the operating profit plus depreciation and amortization expenses (EBITDA). It is important to present as high a sum as possible by increasing operating profit, for example, by reducing non-recurring expenses and reducing current investments to purchase fixed assets, and more.

Disclosure of Material Information

If there are certain problems, disclose them to the buyer before the due diligence process is completed. In this way, the buyer will gain confidence in the selling company and increase trust and the likelihood of completing the sale. A negative datum that was hidden and discovered during due diligence could lead to trust issues and even to the cancellation of the sale.