Prepare for an Exit Transition
The route of public offerings is becoming increasingly less common for businesses. In today’s world, a business is more likely to seek out a merger, acquisition, or asset sale as a way to transition out. If you are a business owner and considering one of these paths, it is wise to start preparing long before you accept an offer. A prepared business avoids potential liabilities in the process. Here are a few ways that you can become prepared for an exit transaction.
Consult with a Lawyer
A lawyer, specifically an experienced corporate lawyer is essential in a smooth transaction. A lawyer can help you sort out your assets before a potential buyer comes along, so that when they do you are able to make a good impression. Preparing with a lawyer can help you reduce liabilities and legal concerns on your end.
Organize Financial Statements and Accounting Procedures
Consulting with your accountant and financial advisors is imperative during a business transaction. These experts will help you present your best assets, the ones you’ve worked hard to build. You should make sure that your statements and procedures are up to the standards of your advisors and implement any changes that they may recommend.
Review Customer and Supplier Contracts
It’s smart to look through all existing agreements for any clauses that may affect the transaction. It is possible there may be clauses that restrict or prohibit the transfer of the contract to another company. This, of course, can delay negotiations if not addressed beforehand.
Tidy Cap Table and Supporting Documentation
Your company’s Cap Table is an extremely important record when it comes to your exit transition and it is imperative that it accurately represents the ownership of your company. Ownership should be thoroughly documented, including any agreements regulating common and preferred stock issuances, stock option and warrant awards, SAFEs, and convertible notes, as well as all board and stockholder resolutions authorizing such transactions. Before entering into any negotiations, be sure to look over these documents and make sure they’re in order.
Potential Liability Exposure
Every company will have outstanding liabilities. It is simply part of the risk of owning a business. It is quite common for a buyer to require the seller to take on the risks of any uncertain or improperly documented liabilities. This is why it is important to properly report any liabilities, preventing them from harming the transaction. Do your best to address any outstanding obligations and for those that can’t be settled before negotiations, be sure that they are properly disclosed. Stay privy to the developments and be prepared to work with your attorney to detail such liabilities in the disclosure schedules.
Protect Intellectual property
A businesses’ worth is almost entirely based on the technology they’ve developed. Make sure that you’ve safeguarded your technology with patents and other intellectual property filings, and that the company has adequate documentation to prove its ownership. Before you get into discussions to sell your business, a corporate attorney can assist you determine that these concerns have been appropriately resolved.
Protect the Data of Employees and Customers
As privacy rules in the United States and throughout the world become more strict, your company will need to be more cautious with sensitive personal data. Personal information about your workers and customers should be digitally protected to meet industry standard, at the very least. Data protection measures should be well-documented and strictly adhered to, and ever-evolving. Consult a corporate attorney to ensure that your company is in compliance with current laws and that it is prepared to comply with potential changes.
Be Aware of Any and All Road Blocks
There are entities with the power to prevent a sale or other transaction. This list includes shareholders, creditors, landlords, and other stakeholders. These parties can usually be persuaded to agree to your deal, but with that power comes the ability to ask for compromises from you. A corporation attorney can assist in identifying each party with such authority and determining what may be done to prevent them from interfering with your exit transaction.