The timely and proper preparation of the sale of your business is of great importance in order to achieve the best result when selling. This is especially important when selling an SME.
Indeed, an SME company has as an additional risk factor that the company is often dependent to a (higher) degree on the DGA. Logically, the rule "the smaller the company, the greater the dependence on the DGA" often applies. The DGA has built long-term relationships with customers, suppliers and partners over the years. Customers often return to the company because they have a personal relationship with the entrepreneur.
Here, it is uncertain whether these customers will still come back if another entrepreneur, the buyer, is at the helm. The key here is whether customers do business with the company or with the entrepreneur. There may also be a business where much of the knowledge and know-how is with the DGA. There are some steps that can be taken to mitigate this risk for a buyer.
StayingDGA after acquisition
The selling party is often asked to stay on for a certain period of time after the acquisition to facilitate the transfer. Often this is a period of one year. In practice, the purchase price is often structured in a way so that part of the amount of the purchase price is tied to the company's financial performance during that period, this is called an earn-out.
If the company meets certain targets, as set forth in the purchase agreement, there is an earn-out on the purchase price in return. The earn-out ensures that the seller of the company is motivated to remain committed to an efficient transfer after the sale of the company.
Tiekey personnel to company
Seller may additionally choose to tie key personnel to the company. One possible tool for this is a Stock Appreciation Rights (SAR) plan. This is financial compensation for key personnel whose amount depends on the value (or results) of the company.
Staff members are only entitled to benefit from this SAR if they remain with the company for a certain period of time. The SAR arrangement can give a buyer confidence that there is a motivated management team attached to the company.
Continuitymanagement
A business owner can transfer his knowledge to key people within the company, such as managers who are salaried employees of the company, well in advance of the intended sale. Involving managers in customer contact facilitates the transfer of the customer portfolio. For example, customers are already doing business with contacts who are still employed by the company after the acquisition.
The entrepreneur should transfer his or her duties in such a way that the business can continue unchanged during periods of extended absence such as a vacation.
