Transaction Support

The Definitive Guide to Business Transaction Basics

Posted on May 1, 2023 by

Bryan Powrozek

Bryan Powrozek

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Are You Ready to Sell?

As a business owner, you wake up each day ready to answer countless calls, but in today’s environment, more leaders are getting a new one: do you want to sell your business? Every business owner has a different answer, but with the dramatic increase in business sales and succession activity, it’s in your best interest to prepare to respond – no matter what your answer is. Even if your business isn’t for sale yet, knowing what’s involved in a business transaction and understanding what buyers value most is a great way to ensure your business can receive the best valuation possible.

Buying or selling a business is more than profit margins or gross revenue. It’s about buying or selling the entire company – including its people, brand, and assets – all of which contribute to the overall valuation and purchase price. Pay attention to the quality of net working capital, fixed assets, workforce, cash flow, and goodwill among stakeholders. Each of these items impacts the overall valuation.

Most interested parties or investment bankers will start by carefully examining your business’ books. If your records aren’t perfect, you’re not alone. However, correcting course right now will pay dividends in the future, should your business decide to sell.

Here are three items many acquiring companies look for: 

  1. Reliable books and records – Requesting 24-36 months of financial records that follow Generally Accepted Accounting Principles (GAAP) is typical. Companies should minimize divergence from GAAP.
  2. Quality of earnings – Reviewing adjustments, including one-time items, errors, and related party transactions, is the basis of the enterprise value. It will also include a review of items such as revenue consistency and on-time payments.
  3. Net working capital – Taking a look at anything that might take money out of your – and their – pocket, including excess inventory and slow-paying customers, is often part of the process.

There are also some contract and human resources considerations to think about as you prepare your business for a sale. 

Contract Consideration

  • Existing contracts with employees, vendors, and landlords, as well as loan agreements and related party agreements, impact buyers, especially those with change of control provisions
  • Obligations to notify third parties of a sale are cumbersome, and as contracts come up for renewal businesses should review them for clauses that would impede a sale

Human Resources Consideration

  • Workforce and human capital continuity are important when considering a transaction
  • Businesses should review personnel contracts to ensure no significant changes can happen if the company is sold
  • Whether involving cash contributions, vesting or phantom equity, businesses should be prepared to make efforts to keep their best talent on board

Why Having the Right Team Matters

Many new questions come into focus when you decide to sell your business. 

  • Where do you find firms interested in buying?
  • How much is your company worth?
  • How do you find a good partner? 

These questions can be overwhelming, which is why it’s important to put together an experienced M&A team to guide you from start to finish. Not only does this reduce your internal team’s time commitment, but it also usually increases the value of the deal.

Retaining an M&A team may seem counterintuitive to businesses who already have close partners on their side. 

  • Q: Why can’t I use the banker, accountant, or attorney that has been on my team for 20 years?
  • A: Unless they have significant experience in similar transactions, they won’t be able to see what their M&A expert counterparts can. 

The potential downside is a decrease in valuation. Private equity firms responsible for most acquisitions in today’s market have veteran teams with decades of expertise. Bringing on your own experts can turn the table.


Due diligence is the accountant’s main job. Reviewing a company’s financials allows you to prepare for any potential problems and ensure credibility. Accountants are also responsible for financial aspects of the transaction such as net working capital analysis, tax issues, risk related to receivables and inventories and quality of earnings, all of which determine the deal’s success.

Legal Council

The primary objective of M&A lawyers is to guide the selling party as they prepare for the transaction. Once the deal comes into focus, they help document and negotiate the purchase agreement. M&A lawyers also provide counsel on letters of intent and public or private market documentation. Lawyers with M&A expertise typically catch provisions that discount the seller’s position.

Investment Bankers

As experts in valuation and the buyer market, investment bankers serve as offensive coordinators on the M&A team. They function as the process manager and gatekeeper between sellers and buyers, recruiting firms and companies interested in acquiring a smaller business. Investment bankers help determine if a business is ready to be sold and educate sellers on improving their businesses to maximize value.

Mergers and acquisitions are uncharted territory for most clients. Bringing on an M&A team is the best way to ensure you get the full value of the company you’ve built.

It’s All About Due Diligence

You’ve been talking to buyers for months and have a letter of intent (LOI) in hand. What comes next? Due diligence. Even though your company is hopefully in sound financial and operational condition, before taking on tens of millions of dollars in new assets, buyers will undergo a thorough check to understand exactly what they are purchasing. 

Buyers look for anything and everything – good or bad. Positive information adds leverage to the deal’s valuation and helps the seller maximize value. Negative information will incur adjustments that lower the overall value, and in some rare cases can jeopardize a deal.

Buyers generally dive into the following categories:

Accounting & Tax

  • Tax compliance
  • Financial results
  • Financial position


  • Articles of incorporation
  • Bylaws
  • Historical and pending litigation
  • Trade secrets
  • IP protection
  • Board meetings
  • Employee agreement
  • Customer/vendor contracts


  • Quality control
  • State of equipment
  • Subcontractor and vendor usage
  • Concentration risks
  • Supply chain
  • Insurance coverage


  • For manufacturing M&A, best practice is generally for buyers to undergo a stage one study of every site to identify contamination.


  • In highly regulated industries such as medical equipment, buyers will ensure companies are compliant
  • Large regulatory issues have the potential to derail agreements


  • IT assets
  • Cybersecurity infrastructure
  • Prior security incidents
  • System compatibility


  • Consumer sentiment towards the company
  • Diversity of the customer base

Sellers should prepare to hand over 3-5 years of financial documents to potential buyers during the due diligence process. 

What do buyers need?

  • EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization
  • Debt: Includes lines of credit, long term notes, liabilities and customer deposits
  • Working Capital: Ensures buyers will not have to inject substantial capital after an acquisition, and that the company will sustain itself over time
  • Tax Exposures: Thorough analysis of tax history in every possible jurisdiction

Getting to an LOI can be a heavy lift, but there are plenty more hurdles to jump over before a transaction is complete. Due diligence is one of the most difficult and having the right team in place will make sure that you answer every question and retain as much value in the sale as possible.

You’ve Closed the Deal, Now What?

Selling a business takes months of preparation, hundreds of phone calls, and seemingly endless decisions before all is said and done. But there’s plenty more for sellers to do after signing on the dotted line. Business sales are large liquidation events that involve substantial transfers of cash to a small group of individuals, sometimes totaling tens of millions of dollars. A liquidity injection of that magnitude is life changing, and though it brings with it a lot of good, it also comes with challenges related to managing and protecting those assets.

Here are some strategies to follow once you’ve closed an M&A deal:

  1. Assemble the right team
  2. Focus on net worth and estate planning
  3. Consider charitable and other giving

There’s plenty more for sellers to do after signing on the dotted line.

Assemble the right team Having the right people by your side to support your finances is one of the most critical decisions you can make after selling a business and creating liquidity within your substantial assets. This kind of wealth can increase the legal and financial challenges. Therefore, it is important to assemble a team to help you navigate these challenges and plan for the future while maintaining the lifestyle you want. 

Generally, a team includes:

  • An accountant that is the de facto quarterback of your financial team. They will lead the procurement of financial documents, help with tax planning and preparation, and support you as you make the shift from traditional wage income sources to living off your investments.
  • An investment advisor who will help develop a long-term financial plan. This includes cash flow planning and decisions around major future life events, in addition to a general investment portfolio management and investing.
  • An estate planning attorney who will develop and manage estate documents including wills, trusts and power of attorney. They will also assist with asset protection matters, and work through vehicles like trusts and LLCs that can be used to protect wealth and mitigate risk.

You’ve sold your business, what do you do now? Will you live from your investments? Start a new venture? Increase your gifting? Do nothing at all and spend time with family? No matter what you choose to do, speaking with your financial team is a great first step. They will help you review everything from expenses for a new venture to health insurance costs that you will need to absorb without an employer

Net Worth and Estate Planning

  • Net worth includes investments, real estate, liabilities and anything else that holds value
  • Understanding your net worth is a critical tool to help with estate planning
  • Your accountant and financial advisor both play a role in understanding your net worth and developing your overall plan – they can help you retain as much or as little control of your money as possible, even when you pass

Charitable and Other Giving

  • Many individuals who have substantial wealth after a large liquidity event turn to giving to support others in a manner never available to them before
  • This could include family and future generations or charitable organizations
  • Trusts, donor advised funds and private foundations are only a few of the options available – your accountant or financial advisor can help you understand the benefits of each

We know that there is plenty more work to do, even after closing on the sale of your business. Having the right team in place will help you maximize your time and assets, all while living the lifestyle you’ve earned. Selling your business may feel like a complex endeavor, but it is one that has potentially never been more lucrative than in today’s red-hot M&A market. Whether you’re actively planning to sell or considering it in the future, implementing best practices now will create a much smoother process when the phone does ring.

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Bryan Powrozek

Senior Manager, Industrial Automation

As the leader of the firm's industrial automation group and host of The Sound of Automation podcast, Bryan helps owners free up cash flow and scale their businesses.

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