Business Development Solutions
The Merger & Acquisition Resource for Growing Companies
Selling a business is not like selling real estate. Confidentiality is maintained so that suppliers, customers, and employees do not know that the business is for sale. According to Business Broker industry data, it takes on average six to twelve months to sell a business. This explores the many tasks that are performed and gives an example the relative time that may be devoted to each task.
Decide to Sell Your Business
· When there are several owners, make sure there is a consensus. If it is a family business, does your spouse agree? Do your children want to take over from you?
Use Experienced Professionals
· Use professionals that are experienced in the issues involved in selling a business. Professionals could include: broker, CPA, attorney, appraiser, personal financial planner. Professionals should work as a team.
Clean Up Financial Statements
· Most every privately owned business has some expenses that are business expense per the IRS, but are discretionary and would not likely have been incurred except that it benefited the owner personally. In some cases, it is more difficult for a buyer to justify adding back these expenses to the profits to determine the adjusted profits. If there are expenses like this in your business, clean them up in the two or three years before you want to sell to get the most for your company.
· Identify uncollectible account receivables and outdated inventory. If a potential purchaser uncovers these items during due diligence, the potential purchase may think that you are hiding things and lose interest in the transaction.
· If the business has surplus assets or the assets are not fully used, take appropriate action now. The selling price is not likely to reflect these assets.
Set Time Frames and Target Dates
The following time schedule is an example:
· 1 month - Complete Confidential Business Review,
set price & terms, and identify potential buyers
· 3 months - Contact all potential buyers (in order to create multiple bids)
· 2 weeks - Plant tours and pre-due diligence
· 2 week - Receive letter of intent and negotiate acceptable agreement
· 2 months - Due diligence, secure financing, closing.
· 7 months - Total time scheduled
Contact Potential Buyers
· We have over 50 ways to market to potential buyers
· Identify and contact synergistic Companies that would place the most value on your business
Identify Important Risks, Problems, and Off Balance Sheet Items
· Identify important risks, problems, and off balance sheet items early in the process. If they are not identified until due diligence it could kill the deal. Examples include: lease escalation clauses, deposits from customers, and legal threats.
Decide on Asking Price & Terms and Expected Price & Terms
· Be prepared to answer critical questions both verbally and in writing. A Confidential Business Review should answer many questions such as: Are the add-backs justified? Is the business dependent on the owner? Are the majority of the sales with just a few customers? What are the business's competitive advantages and disadvantages? Why is the seller selling the business?
Recognize Deal Breakers
Many deals do not happen even after there is an agreement as to the price. Examples include:
· Due diligence uncovers an undisclosed material fact that should have been disclosed.
· Seller has higher than anticipated taxes.
· Seller has second thoughts about selling.
· Because information is slow in getting to buyer (most likely because it was not prepared beforehand), the buyer walks away.
· Buyer cannot finance the deal.
· The buyer and seller do not get along.
· The details of the definite purchase agreement contain unacceptable details. These may include: reps and warrants, collateral requirements for note, and personal guarantee requirements.
· The actual financial results for the quarter/month right before closing are not as good as expected; consequently the buyer gets cold feet and withdraws.
· Professional interference (Ex. Seller's CPA may lose a long term client if client sells.)
Call if you have any questions on the above article or to find out more about buying or selling a business.
Business Development Solutions
Jay Whitney, President