Should You Be Selling Your Company…Now?

The answer to that question is, “It all depends!” Lately, there have been a number of studies, surveys and the like suggesting that as more and more “baby-boomers” reach retirement age, the market will be flooded with companies for sale. The consensus among privately-held company owners reaching and nearing retirement age seems to be that the time to sell is now. In one survey, 57 percent of business owners said that their age was the motivating factor for exiting their business. In another, 75 percent of owners with revenues between $1 million and $150 million stated that they anticipate selling within the next three years. These sort of statistics can leave you with the impression that, soon enough, the market will be inundated with privately-held businesses for sale.  This is good news, if you're a buyer..... but gut-wrenching if you are among the many that had hoped to sell.  Will years of hard work be devalued because the market is suddenly flooded with inventory? Not … [Read more...]

The Confidentiality Agreement

When considering selling their companies, many owners become paranoid regarding the issue of confidentiality. They don't want anyone to know the company is for sale, but at the same time, they want the highest price possible in the shortest period of time. This means, of course, that the company must be presented to quite a few prospects to accomplish this. A business cannot be sold in a vacuum. The following are some of the questions that a seller should expect a confidentiality agreement to cover: What type of information can and can not be disclosed? Are the negotiations open or secret? What is the time frame for which the agreement is binding? The seller should seek a permanently binding agreement. What is the patent right protection in the event the buyer, for example, learns about inventions when checking out the operation? Which state's laws will apply to the agreement if the other party is based in a different state? Where will disputes be heard? What recourse do you have if … [Read more...]

Common Reasons for Selling

It has been said that the sale of a business is usually event driven. Very few owners of businesses, whether small or large, wake up one morning and think, “Today I am going to sell my company.” It is usually a decision made after considerable thought and usually also prompted by some event. Here are a few common “events” that may prompt the decision to sell: Boredom or “Burn-out” – Many business owners, especially those who started their companies and have spent years building and running them, find that the “batteries are starting to run low.” Divorce or Illness – Both divorce and illness can cause a rapid change in one's life. Either of these events, or a similar personal tragedy, can prompt a business owner to decide that selling is the best course of action. Outside Investors – Outside investors may include family, friends, or just plain outside investors. These outside investors may be putting pressure on the owner/majority owner in order to recoup their investment. No Heir … [Read more...]

Valuing the Business: Some Difficult Issues

Business valuations are almost always difficult and often complex. A valuation is also frequently subject to the judgment of the person conducting it. In addition, the person conducting the valuation must assume that the information furnished to him or her is accurate. Here are some issues that must be considered when arriving at a value for the business: Product Diversity – Firms with just a single product or service are subject to a much greater risk than multiproduct firms. Customer Concentration – Many small companies have just one or two major customers or clients; losing one would be a major issue. Intangible Assets – Patents, trademarks and copyrights can be important assets, but are very difficult to value. Critical Supply Sources – If a firm uses just a single supplier to obtain a low-cost competitive edge, that competitive edge is more subject to change; or if the supplier is in a foreign country, the supply is more at risk for delivery interruption. ESOP Ownership – A … [Read more...]

Considering Selling? Some Important Questions

Some years ago, when Ted Kennedy was running for president of the United States, a commentator asked him why he wanted to be president. Senator Kennedy stumbled through his answer, almost ending his presidential run. Business owners, when asked questions by potential buyers, need to be prepared to provide forthright answers without stumbling. Here are three questions that potential buyers will ask: Why do you want to sell the business? What should a new owner do to grow the business? What makes this company different from its competitors? Then, there are two questions that sellers must ask themselves: What is your bottom-line price after taxes and closing costs? What are the best terms you are willing to offer and then accept? You need to be able to answer the questions a prospective buyer will ask without any “puffing” or coming across as overly anxious. In answering the questions you must ask yourself, remember that complete honesty is the only policy. The best way to prepare … [Read more...]

Is Your “Normalized” P&L Statement Normal?

Normalized Financial Statements – Statements that have been adjusted for items not representative of the current status of the business. Normalizing statements could include such adjustments as a non-recurring event, such as attorney fees expended in litigation. Another non-recurring event might be a plant closing or adjustments of abnormal depreciation. Sometimes, owner's compensation and benefits need to be restated to reflect a competitive market value. Privately held companies, when tax time comes around, want to show as little profit as possible. However, when it comes time to borrow money or sell the business, they want to show just the opposite. Lenders and prospective acquirers want to see a strong bottom line. The best way to do this is to normalize, or recast, the profit and loss statement. The figures added back to the profit and loss statement are usually termed “add backs.” They are adjustments added back to the statement to increase the profit of the company. For example, … [Read more...]

Do You Have an Exit Plan?

“Exit strategies may allow you to get out before the bottom falls out of your industry. Well-planned exits allow you to get a better price for your business.” From: Selling Your Business by Russ Robb, published by Adams Media Corporation Whether you plan to sell out in one year, five years, or never, you need an exit strategy. As the term suggests, an exit strategy is a plan for leaving your business, and every business should have one, if not two. The first is useful as a guide to a smooth exit from your business. The second is for emergencies that could come about due to poor health or partnership problems. You may never plan to sell, but you never know! The first step in creating an exit plan is to develop what is basically an exit policy and procedure manual. It may end up being only on a few sheets of paper, but it should outline your thoughts on how to exit the business when the time comes. There are some important questions to wrestle with in creating a basic plan and … [Read more...]

Who will you Trust to Help you Buy or Sell your Business?

If you have done any research on buying or selling or a business, you already know that it’s not quite like buying or selling a house.  The process is far more confidential and complex, and it requires the expertise of someone who specializes in this field. While there are many who claim to be “experts,” the truth is, very few individuals have actually made it their life’s work.  They may have dabbled in business sales as part of a commercial investment or general real estate career. …. May have even handled a business sale on occasion here and there.  But it’s not what they do, everyday, year in and year out.  It’s not how they put food on their table, or what they count on for repeat business.  In short, it’s a sideline. Trust me, you do not want to be someone’s sideline!  Their lack of experience can cost you time, money, and often kill negotiations that otherwise would have succeeded with an experienced Broker.  That’s bad news whether you’re a buyer or a … [Read more...]

What a Buyer May Really Be Looking At

Buyers, as part of their due diligence, usually employ accountants to check the numbers and attorneys to both look at legal issues and draft or review documents. Buyers may also bring in other professionals to look at the business’ operations. The prudent buyer is also looking behind the scenes to make sure there are not any “skeletons in the closet.” It makes sense for a seller to be just as prudent. Knowing what the prudent buyer may be checking can be a big help. A business intermediary professional is a good person to help a seller look at these issues. They are very familiar with what buyers are looking for when considering a company to purchase. Here are some examples of things that a prudent buyer will be checking: Finance Is the business taking all of the trade discounts available or is it late in paying its bills? This could indicate poor cash management policies. Checking the gross margins for the past several years might indicate a lack of control, price erosion or … [Read more...]

A “Pig in a Poke"

Once a buyer and seller have a Purchase Agreement in place, the due diligence phase of the acquisition begins.  Some due diligence can be accomplished by analyzing hard numbers and facts.  Verifying inventory, sales, and receivables can be accomplished through closer examination of the company's books and records.   Other factors, however, can require a bit more digging to insure there are no “skeletons in the closet.”  No buyer wants to end up with the proverbial “pig in a poke.” The four main areas of concern are: business' finances, management, and marketing. Business' Finances: The following areas should be investigated thoroughly. Does the firm have good cash management? Do they have solid banking relations? Are the financial statements current? Are they audited..... and if not, are there sufficient records in place to cross check financial statements against transaction registers?  Is the company profitable? How do expenses and sales compare to industry … [Read more...]