The first article I wrote for SDM was in January 1980. While almost 40 years has passed since then, I recently came across the article and realized it is still as relevant today. So if you are at all considering selling your company, read on.
Many alarm company proprietors have contacted me to ask, “Do you know anyone interested in buying my company?”
The prospective seller is frequently dealing with his “baby,” a dream that he created, nurtured, watched mature and to which he devoted the vast majority of his waking hours.
“Do I really want to sell my company,” or more importantly, “why do I want to sell my company?” must be answered at the outset.
After determining their motivation, the seller must determine whether a prospective buyer will satisfy their objectives. If the seller or members of the seller’s family desire to remain employed in the business, a determination must be made whether the buyer desires their services and if so, do they conform to the buyer’s profile? Can the seller or their family comply with corporate mentality? Will there be autonomy? Can the seller exist with limited autonomy? Can the seller work with the buyer? Will the seller’s inputs be accepted?
These questions and the answers may be instrumental in determining whether the seller chooses to sell. They may not be important unless the seller wishes to remain on the management team after the sale or a portion of the purchase price has been tied into an earn out provision or an employment contract.
If the seller is to become part of the buyer’s management team, they should attempt to find out to whom they will report, and whether personality or other problems are likely to arise with other members of management. He or she may wish to consider the possibilities for advancement in the buyer’s organization and should also find out about the buyer’s reputation in the community.
The seller, having made the decision to sell and having found a suitable buyer, must then turn to questions of valuing the company and structuring the sale.
The actual purchase and sale transaction is generally consummated by either a sale of shares of stock of a corporation, or a sale of assets of an individual, partnership or corporation. In either event, the transaction may result in a risk to the seller after the close if the entire purchase price is not paid in full at the close.
If the seller accepts a payout, they must rely on the buyer to pay off all of their obligations over a period of time, as well as to discharge obligations on which the seller may have continuing liability. It becomes incumbent upon a seller to investigate the buyer’s integrity, reputation, motivation, skill, experience and financial strength as well as to make certain that they are properly protected and have retained adequate security to protect themselves prior to making the deal. — Originally published in SDM January, 1980