Selling a Business: effective marketing

This second installment of a series covers effective marketing of your business.?

Part One is here: https://www.dhirubhai.net/pulse/selling-your-business-primer-stephanie-tsacoumis-kzjke?trackingId=7jW0sTLlSTaV6LtJYcNRPw%3D%3D&lipi=urn%3Ali%3Apage%3Ad_flagship3_messaging_conversation_detail%3Bji2rrmsYTBOYNEjjnYmxMg%3D%3D

MARKETING YOUR BUSINESS

Sophisticated sellers prepare a comprehensive written description of the business to be sold. Whether called a “selling memo,” “offering memorandum” or simply “business description,” this document contains key information about the business, and is an opportunity to highlight why the business is attractive.?

Thinking about this document at an early stage can help you refine the company's "story": how best to position and present the company and its attributes in the context of its business, market and competition. This "positioning" is a critical aspect of maximizing value. Indeed, in many transactions, whether involving public or private companies, it is this "positioning" exercise on which investment bankers, brokers and other professional service providers focus significant effort.

Preparing an effective sales document.

The components of an effective sales memorandum will vary depending on the nature and size of the company, and the type of transaction sought. Typical contents of a sales document are as follows.?

Executive summary.? An executive summary – consisting of a high level description of the business; an overview of business strengths; information about the company's competitive position and financial performance; and a summary of offering price and terms – sets the stage for the more detailed information to follow. The executive summary should address the key highlights and benefits of a potential transaction, and should reflect the desired "positioning" of the business. You want to capture the reader's interest!

The executive summary is frequently provided as a separate marketing "take-away" in connection with initial conversations with potentially interested parties. If the executive summary is drafted in general terms, it can be the basis for assessing possible interest without divulging more detailed – and confidential –information. Should the recipient be interested in the transaction, the comprehensive sales document then can be provided (after applicable nondisclosure agreements have been executed).

Even though the executive summary is drafted with a view toward marketing the business, like the other sections of the sales document, the executive summary should be meticulously accurate. Factual information should be verified, and to the extent that projections or forward looking statements are made (a separate topic in and of itself!), applicable assumptions and caveats should be clearly stated.

Business description.? The body of the sales document will convey more detailed information about various aspects of the business, its operation and financial performance. The description of the business or assets being sold generally includes:

• Clear identification of what is being sold and reasons for the sale;
• A summary of the history of the business;
• Business strengths and challenges;
• Information about the legal structure of the business;
• Description of revenue generating activities (products and services), and the target markets for the products or services;
• Distribution channels for products and services, as applicable;
• Development of new revenue generating activities, if any;
• Diversification of revenue sources and dependence on major clients or customers;
• Description of applicable intellectual property and rights held by the business; and
• Description of regulatory oversight of the business, as applicable.

Products and services. Specific information about the company's products and services often addresses:

• Distinguishing features of products and services;
• Trends in market demand and sales; and
• Description of marketing strategy.

Competitive landscape. Competitive conditions and the company's strategy for managing its competitive position will be of interest to a buyer or investor. The sales document might include:

• Description of competitive conditions and significant competitors;
• Competitive advantages of business and its products and services; and
• Identified growth opportunities.

Operations. An effective sales document will describe key aspects of business operations. Significant discussion typically addresses the following:

• Employee-related information, which may include:

– Number of employees,

– Nature of workforce (exempt/non-exempt/full time/part time),

– Workforce by function (management/sales/business development/marketing/HR/etc),

– Employee benefits,

– Human resources function.

• Description of owned/leased real property;
• Description of material contracts (including employment contracts and those with major customers);
• Information about fixed assets, operating equipment and inventory; and
• Discussion of legal matters, pending or threatened proceedings, and business disputes.

Financial information. The nature of the financial information provided will depend on the size and character of the business. Audited financial statements, of course, are preferred, conveying a level of confidence in the company's accounting procedures and internal controls, in the accuracy of the numbers and in the professionalism of the company's managers. To the extent that an audit is not practicable, financial statements that have been "reviewed" by an independent audit firm are the next best thing. Failing audited or "reviewed" financial information, preparation of the information by a CPA can provide some measure of comfort to prospective buyers or investors.

Financial disclosure in a sales memorandum generally will include:

• Statement of accounting method (accrual or cash basis), and summary of important accounting policies (especially those relating to recognition of revenue and write-offs); and
• Historical key financial information, such as revenues, net income, EBITDA/seller’s discretionary earnings, for recent fiscal years (ideally, three fiscal years) and year-to-date results.

Terms. The goal of the sales document is to secure a sale! The document thus should set out clearly the terms sought by the seller, including:

• Asking price for clearly identified assets/equity to be sold;
• Acceptable consideration:? cash/stock/note;
• Availability of seller financing;
• Buyer qualifications, if any;
• Seller’s time frame;
• Seller’s willingness to continue with business during transition period; and
• Seller’s willingness to sign a non-compete agreement.

Tell the truth, the whole truth and nothing but the truth.

Sellers ultimately are required in typical acquisition or purchase agreements to warrant the accuracy of the information conveyed in connection with the transaction. As a result, the information conveyed in a sales memorandum should be factual, accurate and complete, and should be presented in a balanced manner, without unsupported hyperbole.?Factual statements should be cross-checked against supporting documentary materials. Projections and forward looking statements should have a reasonable basis, and any applicable assumptions should be explicitly explained and optimally should have some historical or factual predicate. Scrupulous accuracy provides a large measure of protection against unhappy (or litigious) buyers or investors.

Part Three

Stay tuned for Part Three in this series, which will address getting organized and due diligence.

#CompanySale #acquisition #merger #StartupExit

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