How to Sell Your Business in Georgia

You have come to the conclusion that it is time to sell your business. Now, what do you do? I am going to give you a quick high-level overview of the process and other things you should do or expect.

Preparing Your Company For Sale

We are going to start with valuing your business. In order to do this, whomever you choose to help you do this is going to require at least the following to get started. Gather these items and present them as orderly as possible.

• Profit and loss statements for the last three years. You will most likely be asked for your tax returns as well.
• Information on real estate or lease(s) for the business operations.
• List of equipment, fixtures, equipment and vehicles owned and/or used by the business.
• Information on any debt/loan obligations of the business (note, terms, amount, payment schedule).

Valuation

This information will be used to come to a reliable SDE, or Seller’s Discretionary Earnings, if you are a small business typically with profits less than $1 million and a non-complicated business structure. For companies with profits over $1 million, the number we are looking for is EBITDA, or Earnings Before Interest Taxes Depreciation and Amortization. The goal of these numbers is to provide a similar number, the true reliable cash flow of the business.

Another distinguishing factor between SDE and EBITDA. If you are the owner of the business and take the profits of the business as they come, do not pay yourself a market regular salary for your physical work efforts, some co-mingling of business and personal funds, the number that your business will be evaluated by is Seller’s Discretionary Earnings. Which actually a benefit to the seller of the business for valuation purposes in my opinion. 

In professionalized companies, where the President/operator is being paid a market salary and the profit is paid in dividends, we will be looking to establish a reliable EBITDA for valuation. For my readers, I will refer to the smaller businesses where we are looking to establish SDE, as a Business and the latter as a Company.

Once this number is established we will look for recent comparable sales and the multiple of SDE or EBITDA in relation to the sales price. In the industry, this is simply called the “multiple”. Your established SDE/EBITDA is then multiplied by that industry multiple and a soft baseline of market value for your business is established. There are many other factors that fine-tune the range up or down from there such as age and maintenance of your equipment and fleet, contracts that guarantee future cash flow, and many others. One factor that won’t be overlooked, are you, as the owner, the secret sauce to the business? If so you may feel good about yourself but when you leave your business, that instantly makes it less valuable. I will provide more on this important topic in another post or video.

Choosing Your Deal Team

If your business has less than a $5 million valuation, I would recommend working with an experienced Business Broker. In the state of Georgia (and most states), this individual has to be licensed. For companies larger than that you will most likely be best guided by an Investment Banking firm.

The larger transactions tend to include more complex forms of financing and deal terms that could require different expertise, needs, and relationships to get the deal done. These advisors are paid a commission upon the sale and some also require an upfront fee as the deals get more complex and more upfront work is needed to market and complete the transaction.

Another key player in your deal team will be an Attorney that is experienced with M&A, or mergers and acquisitions. You do want someone who is experienced in this field, otherwise you may end up being recommended to negotiate items that are general terms while key tricky nuanced items could be overlooked. Working with an experienced attorney should mitigate those risks.

You should already be working with a good Accountant, they will be utilized through this process. Also, a Wealth Advisor is recommended to make sure you are making sound financial decisions with any lump sums and your change in financial condition post-sale.

Marketing Your Business for Sale

Marketing your company for sale, while staying confidential, not scaring your employees, not tipping off your key customers, and keeping key information away from competitors (that aren’t serious potential buyers), is not an easy task. Lucky for you, this process will be managed by your Business Broker or Investment Banker.

To get started a “selling memorandum” will be created to market your business. I recommend having dual memos. One that describes the company from a high level, but still maintains the company's confidentiality and details and another that goes into more detail for buyers that have seen the initial memo and have shown a higher level of seriousness and capability of getting the deal done. It is important for your advisor to be able to vet and fish out the info seekers from the real potential buyers.

Make sure your advisor is asking you good questions to establish good profile types of potential buyers. If your advisor is not trying to understand your business and what the potential buyers are and where to find them, I do not think they will bring you the best sales opportunities.

Negotiating With a Buyer & Accepting Offer

Your advisor's main job is to market your company and generate qualified offers for your business. These offers come in the form of a “Purchase Offer” or “Letter of Intent, LOI”. This offer will lay out the offer and the general terms. Carefully review these offers as they begins to establish the true market of your business. Whether you were given a Market Value Analysis or an actual Valuation by a certified Appraiser, the true value of your business is the actual offers that come in.

Be prepared to understand the financial structure of the deal. There will typically be some sort of bank financing in the deal, which tends to be the longest part of the closing the deal process, and there will also likely be “Seller Financing” or “Earnouts” as part of the transaction. Seller Financing is just that, financing that you as the seller provide for part of the payment. You will get paid like a bank with payments and interest over a period of time (typically 1-3 years). Earnouts are bonus payments made that are tied to some type of milestone(s) such as the company maintaining certain contracts or client relationships. These terms help the buyers mitigate risk and build confidence in purchasing smaller businesses and companies that have a higher risk factor than their larger counterparts with multiple divisions, many employees, and other factors that give the confidence of a continuity of cash flows as the business transitions from one owner to another.

Once valuation and terms are agreed upon, the final terms will be presented in the Purchase Offer or LOI and be signed by both parties. Typically at this time a deposit will be collected from the buyer by your Business Broker and held in an escrow account, similar to the home-buying process. Now on to due diligence.

Due Diligence

The terms are settled and a contingent deal is made, congrats! You can be happy for a moment, but we are still some important steps to the finish line. In this phase, the buyer’s goal is to validate all of the claims you have made about the business. For smaller businesses this process will be weeks to a month, for more complicated deals, this can last months. You can expect to be asked to share much more information than is listed earlier in this post. You will get asked for contracts, employee reports, project reporting, and much more depending on the type of business. Please see our due diligence checklist for a more exhaustive example of what you may be asked for.

It is important your advisor manages this process for you. You want to present the information orderly and you do not want the process to get out of hand. Mistakes made during this process can kill a deal or get you back at the negotiating table with the buyers presenting a decreased valuation.

Closing the Sale

Now due diligence is complete and terms are nailed down, it is time for lawyers to land the plane. The Attorney's role is to take the spirit of the terms and negotiation and document it into a series of documents and contracts for the final negotiation phase of final terms, conditions, and protections.

In Georgia, it is required for a lawyer to facilitate the closing of the transaction. Remember to pick an experienced M&A Attorney for the smoothest process and least amount of contract risk.

Final Thoughts

Selling your company in most cases is the most important financial decision of your business ownership to date. It will also be a decision that you likely don’t have experience in. It is important to surround yourself with the right advisors to help you through this complex process. Their experience should help you navigate the process smoothly, get in front of qualified buyers, and ultimately get you a higher sale price than trying to manage this on your own, or hire inexperienced advisors.