| When it is time to sell their businesses, most owners | | | | prepared to market their businesses confidentially for |
| find the prospect daunting and intimidating. With so | | | | at least six months. Business intermediaries should |
| many factors to consider, it is hard to know where to | | | | create a competitive environment where multiple |
| begin. With the help of professional advisers, such as | | | | buyers bid for the same company by marketing |
| an attorney, an accountant, an investment adviser and | | | | through different channels. |
| an M&A intermediary, the process can be | | | | - Lack of commitment to the process: The process of |
| strategically planned and cautiously managed. This is a | | | | selling your business requires commitment of time and |
| two-part article that addresses some of the most | | | | energy into meeting with buyers and answering |
| common questions business owners ask when | | | | questions. Emotions and interests can grow stale after |
| beginning the process. | | | | long delays, so inquiries and questions should be |
| When should I begin preparing for the sale of my | | | | resolved in a timely fashion. This commitment is |
| business? | | | | especially important during the due diligence process |
| In order to maximize the value of your business, it is | | | | when the buyer will inevitably be making numerous |
| best to begin preparing your company at least two to | | | | requests. |
| three years in advance. Accredited business | | | | How can deal terms and structures affect me? |
| appraisers can provide a wealth of information on your | | | | The goal of every business owner is to maximize the |
| business' strengths and weaknesses. However, if you | | | | value of his or her business, and generally, the better |
| don't have three years to wait, keep in mind that any | | | | the terms offered to the buyers, the higher the total |
| preparation is better than no preparation. | | | | transaction value. Buyers typically want sellers to |
| What should I do to prepare my business for sale? | | | | shoulder a portion of the price through seller financing |
| - Organize financial statements: Your company | | | | or an earn-out. However, sellers need to evaluate |
| financial statements will be one of the most reviewed | | | | these terms seriously, as there can be significant risks |
| documents during the transaction. By making sure your | | | | involved. In addition, the deal structures can affect the |
| documents are organized and transparent, you help | | | | tax implications for both the buyers and the sellers. |
| buyers and lenders more easily evaluate your | | | | Proper tax planning before the sale can help maximize |
| company's performance. Clean the financial | | | | the net proceeds of the sale. It is important to focus |
| statements by reducing the number of personal | | | | not only on the gross proceeds (before taxes), but |
| expenses running through the business. Also, remove | | | | also be concerned with the net proceeds. |
| any non-operating assets from the company's balance | | | | What advisers should I consult with and what costs |
| sheet. Any audited financial statements from a third | | | | are involved? |
| party will provide even more credibility. | | | | When selling your business, you need the help of a |
| - Reduce dependencies: One of the biggest risks most | | | | professional team to help you. An M&A |
| companies face is being over-reliant on certain | | | | intermediary or business broker, an attorney, an |
| products or people. Reduce dependencies and lower | | | | accountant and an investment adviser can help you |
| the risk by diversifying product lines, employee talent, | | | | make the best decisions. These expert professionals |
| customers and suppliers. A company with more than | | | | can help you take care of the transaction, leaving you |
| one avenue of income and resources will be more | | | | with more time and energy to manage your company, |
| able to withstand any problems the company may | | | | and their fees are well worth the value they can help |
| face. | | | | you obtain. |
| - Build infrastructure:A company overly dependent | | | | Professional intermediaries, whether an M&A |
| upon the owner may have problems with | | | | intermediary or a business broker, usually collect the |
| transferability. Buyers want to be reassured that the | | | | majority of their fees after the sale of the company. |
| company will continue performing in its current state | | | | The fee is generally a percentage of the selling price, |
| after the transaction. A strong infrastructure comprised | | | | starting from ten percent and decreasing based on the |
| of key managers, trained employees, modern | | | | deal's size. |
| equipment and effective systems of financial reporting, | | | | Be careful of some "seminar" intermediary firms that |
| inventory and operations management will help mitigate | | | | charge large upfront fees ($29,500 to $45,000) for |
| this threat. | | | | their services. These firms promise premium buyers |
| Why do some businesses fail to sell? | | | | and extraordinary high sales prices. However, after |
| Most businesses properly marketed will sell between | | | | collecting their fees, these firms inevitably fail to fulfill |
| four to twelve months between the initial time to | | | | their promises. Reputable intermediaries will earn the |
| market and closing. The businesses that fail to sell | | | | majority of their fees after a successful sale. |
| usually have the same characteristics: | | | | Conclusion |
| - Improperly priced: Many small businesses never sell | | | | Selling your business does not have to be a frustrating |
| because they are overpriced. While it is important that | | | | and stressful experience. Discuss your options with |
| owners reach their personal goals, it is also important | | | | your professional advisers as early as possible to |
| to set realistic expectations. A credible asking price | | | | maximize the value of your business. Don't forget to |
| should be supported by financial history, market | | | | interview several local business intermediaries and see |
| comparables and other future projections. | | | | who has the ability to help you meet your personal |
| - Insufficient marketing: Business owners should be | | | | goals. |