Banks for sale: how to conduct pre-sale preparation?

Selling a banking business is a complex and responsible process that requires careful preparation and implementation of certain strategies. In order to sell a bank or a share in it to a third party, participants in such a commercial project must hold a constituent meeting and record their decision in the minutes. In addition to this nuance, there are many more factors associated with bank sale preparation procedures, which we will discuss below.

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Selling Bank Tips: Financial Analysis and Documentation

For a bank sale commercial offer to be realized quickly and without unnecessary complications, you need to show potential buyers its profitability and explain how it works. To do this, you need to collect reports and describe banking assets and business processes. For most investors, reports for the past year will be enough. If you maintain accounting and management records, then you must provide the following.

1. Cash flow report. Using it, you can track where the company directs its financial flows and where the money comes from.
2. Income statement. This is a true reflection of how much the company earns.
3. Balance sheet. In it you can see accounts payable and receivable, equipment taking into account its depreciation.

If you haven’t kept records, you will need to create them, otherwise your proposal will not be credible. To do this, you will have to raise all the bills and documents.

When preparing bank for sale, it is best to start with an inventory of assets and liabilities. Assets can be tangible or intangible and should be valued separately. Money. This could be means of production, inventory, or premises that you own. Material assets have a market price, and the client will be guided by it when purchasing.

1. Financial analysis bank sale. This is money and its equivalents. These include accounts receivable, shares, bonds of other companies and deposits in banks. Agreements with counterparties. This could be contracts with suppliers on better terms or the right to long-term lease of municipal land on which your business is located.
2. Intellectual property. This includes software products, a trademark, designs and marketing materials, groups on social networks, a website and a domain name. For the banking business, a patented application, if available, and any online systems that allow the bank to serve clients remotely in the virtual space are especially important.

Particularly important when selling a bank is its solvency, since this is one of the main criteria for financial organizations. Bank owners should first assess how solvent the organization is and whether it can fulfill its obligations to counterparties. In addition, it is important to analyze whether there are risks of loss of solvency in the future. You need to check the following carefully. Absolute liquidity. Find out if there are delays in the use of highly liquid assets. How solvent is the organization, are there any delays in the use of highly liquid assets. Thus, bank sale checklist includes next-mentioned.

1. Probability of loss of solvency. Analyze the results of the reporting period, whether there are any trends towards loss of solvency.
2. Net profit margin. In other words, you need to find out what the industry average is.

When selling a bank, it is especially important to prepare a cash flow schedule. It clearly demonstrates how much money the new owner can withdraw every month without damaging the business. The schedule is built on the basis of payments and receipts by date.

Marketing bank sale makes it possible to promote your business on the market and speed up sales. An important factor here is the marketing description of the banking products that the company offers and various offers to attract new customers.

If a bank has a manager who is aware of current affairs and future plans, this increases the value of the business. The new owner will not have to waste time searching for a director and re-issuing documents; the company can immediately continue its work.

Additionally, it is worth preparing the following. These types of documents are necessary when selling any type of commercial structures, in particular financial ones.

1. A business plan for the coming year will add value to your offering and help a new buyer get comfortable with the business.
2. Personnel documents will provide an understanding of the number of employees, their qualifications and job responsibilities.
3. Client base. It’s not just the size of the base that is important, but also how often customers make repeat purchases, how much it costs to attract a customer in a niche, how much a returning customer can bring to the business, and how likely they are to return.
4. The financial model shows how much revenue a bank is able to generate, what its cost structure is and its net financial result – profit or loss. Based on the financial model or the main financial statements of cash flow and balance sheet, the buyer will be able to assess how profitable the acquisition of the business will be for him/her.

Legal and Regulatory Compliance Review

The bank needs to be prepared by assessing the risks associated with its activities and all operations, as well as assets in storage. Often, the risks are aggravated by the fact that a significant share of loans issued by one or another bank presented for sale are loans, the size of which is not a significant amount, and their share has been growing since the Internet has become the bank’s main distribution channel.

The collection of such loans is not economically profitable, so it is doubtful that the bank that is selling will be able to recover it at face value after a change of owner. A significant share of bad loans will sooner or later have an impact on the bank’s profitability, which may discourage investors. It is recommended to minimize the number of such loans before the planned sale, leaving only long-term cooperation with proven credit clients.

To reduce risks, do not provide important information before meeting the buyer. In your correspondence, you can show him a presentation about how the processes work, or give him a link to the website. Everything else, including a tour of the office and full reporting, is only after signing a non-disclosure agreement or a preliminary bank purchase and sale agreement.

If there is more than one founder in the bank, the decision to accept a new person into the founders must be made unanimously. In some cases, the charter prohibits the admission of new people to the membership – then this method for selling the bank will not be suitable.

The new founder, who is also the buyer, submits the following documents to the tax service and local regulatory authorities within a month (an approximate list that may differ depending on the jurisdiction):

• decision of the sole founder or notarized minutes of the general meeting;
• notarized statement;
• confirmation of payment of the state commission;
• documents confirming the contribution to the authorized capital;
• amended charter of the bank.

The regulator will make a record of the change in the composition of the founders in the local register. After a clearly established period, a new member of the company will receive a confirmation document with an updated composition of founders, as well as a new edition of the charter.

Negotiation bank sale and Due Diligence Processes

The owner or co-founder of a legal entity can sell the bank without changes or preliminary modifications if all assets are registered on the bank’s balance sheet. In this case, you will only need one document – the purchase and sale agreement. It requires notarization.

In both cases, at the negotiation stage before the transaction, it is advisable to draw up two additional documents.

1. Agreement of intent is concluded primarily to confirm the parties’ intentions to complete a transaction.
2. Agreement on non-distribution of confidential information protects the seller from unscrupulous buyers.

If a potential buyer refuses to enter into agreements, most likely his goal is not to buy a business, but to obtain confidential information and use it to his/her advantage.

Our specialists are ready to provide you with comprehensive consulting and practical support in purchasing a bank in any jurisdiction around the world. You can fully rely on us, taking advantage of our knowledge and experience.

The article’s author is Denys Chernyshov – founder and CEO of the globally-famous organization Eternity Law International.