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by Theodore P. Burbank
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The selling of a business is not an everyday
event for an entrepreneur. For most it is a once
in a life time experience. The consequences are
generally greater and have longer lasting impact
than any business decisions previously made. The
result of the sale can be either traumatic or
rewarding - financially and emotionally. Given
the stakes, the business owner owes it to
himself, his family and employees to take steps
calculated to maximize success - success not
only in obtaining the highest value but also in
the continued viability of the company after the
sale.
To achieve this objective, savvy sellers
approach the process with the planning
discipline they impose on important day to day
operations and strategy decisions. What follows
is an overview of the winning strategies.
Plan ahead in order that you might present
your company to an acquirer in the best light.
Is selling now timely? Obtain the information
you need to make an informed decision.
Identify the ideal candidate. A company that
would be worthless to one might be worth
millions to another.
Position your company. Package the
information the acquirer will need in the
decision making process.
Set price and terms for your company that you
can defend with confidence and credibility.
Apply attitudinal and negotiating techniques
to enhance your ability to obtain the best price
and terms.
Following this procedure will eliminate many
problems before they can occur thus saving
extravagant expenditures of time, money and
energy.
Plan Ahead
Preplanning is one way the savvy seller
maximizes his profit when selling. He
understands that when it comes to selling, his
company is a product. Its financial and
operational record will result in its being
deemed either a prize or a distress item to be
acquired only at a bargain price. Explanations,
financial reconstructions, or contingent
earn-outs will not completely eliminate
lack-luster historic performance.
Here are some of the things you can do:
Have professionally prepared statements if
you don't already have them. If the size of your
company warrants, have audited statements
prepared. While buyers generally conduct their
own verification as part of their pre-purchase
investigation, their level of concern will be
materially reduced if you have complete and
professionally prepared statements.
Review your lease, if you are in leased
space. Make sure you have 5 to 10 years
remaining. If not, negotiate with the landlord
for the additional time before you find the
buyer. If you own your real estate, consider
having it appraised now as part of your
preparation and decision making. You may find
your building alone is worth more, (with another
use), than if the business and real estate were
sold together.
The understandable desire to maximize
personal wealth by understating earnings may
have to be replaced with the desire to increase
the value of the company. Items may be
capitalized rather than expensed. Salaries,
bonuses and redundant personnel may be trimmed.
Inventory "cushions", travel and entertainment,
charitable donations etc. might be reduced.
Discretionary expenses should be curtailed or
made clearly identifiable.
Is selling now timely?
Only you can answer this question. However,
in order to do so, you need information upon
which to make an informed decision. You need
answers to several questions. What is the
company worth? What might it be worth later?
What steps could be taken to increase its value?
Given the stakes, the business owner owes it
to himself, his family and employees to take
steps calculated to maximize success. Look in
the mirror. How do you appear to others that may
be involved in decision? To frankly assess our
own strengths, weaknesses and appearances is
extremely difficult, if not impossible. Seldom
are we able to distance ourselves sufficiently
to be objective. Additionally, we usually lack
the "Market Place Perspective" required to
understand how and why others will perceive us.
What to do as in any situation of major
importance, you should engage a professional. In
this case you need a firm or person actively
engaged as business brokers or intermediaries.
They interact daily with bankers, buyers and
private money sources. They understand the
market place, the perspective of the various
investor types and their advisors.
The firm you choose should have market place
experience in dealing with buyers, sellers and
bankers. They should be large enough to bring a
team of diverse talents to your project. Make
sure they have experience working with private
companies. There is a world of difference
between private and public companies. The report
you receive should review both the objective
data and subjective environment that surrounds
your business through the eyes of those involved
in your decision, (bankers, buyers, investors,
etc.).
Appropriate accounting, statistical and
subjective approaches are then applied to
develop a range of Bench Mark Values for your
business. "Bench Mark" Values include, but are
not limited to, Market Value, and Cash Flow
benefits to you (present and future). A
comparison of the values allows you and your
advisors to objectively determine the course of
action that represents your best interests. You
are now in charge.
Attracting the "Right Buyer"
Value, like beauty, is "in the eye of the
beholder" and beauty is very subjective. The
savvy seller instinctively understands that the
uniqueness of his firm represents its highest
value only to a unique buyer. The buyer will
have the specific combination of skills,
interests, talents and resources the company
requires to prosper and grow. In other words,
the buyer will "fit" the opportunity the company
represents.
During the Business Profile and Buyer
Identification portion of the first step, a
portrait of the ideal acquirer was developed.
You know "what he will look like". You also know
where to find him. You understand how he thinks
and why he will pay the highest price. As they
say in tennis, "Advantage, Savvy Seller."
Positioning Your Company
One might define positioning as "Not what you
see but how you see it". During the prior step
we corrected several items to enhance the value
of the company. Positioning allows those things
that either we couldn't or didn't want to change
to be viewed in a positive light. "All the right
things are wrong with the company." The savvy
seller is aware of this and either learns how to
accomplish it or engages a professional, usually
a business intermediary, for assistance in this
all important phase. Purchasers have become much
more sophisticated and will insist on
substantial amounts of information for even the
smallest of companies.
In recognition of this an attractive,
persuasive- yet frank selling document is
prepared. This document, or business profile,
should contain the information necessary for an
investor and his advisors to make intelligent
decisions. The profile serves as a track that
leads to a successful transfer. Financial
information, although important, represents a
minor portion of the document.
Price and Terms
The savvy seller understands how different
buyers value and price companies and positions
his accordingly. The first three steps,
(business profile and buyer identification,
preparation and positioning) are designed to
identify, obtain and defend the best price. You
are in control. Your company is viewed as a
prize representing exciting opportunities. You
are viewed as a serious, reasonable and astute
business person. Your price and terms can be
defended with confidence and credibility.
Negotiations
Negotiating in the emotional atmosphere that
surrounds every business transfer requires skill
and experience. The Savvy Seller generally
engages an experienced business intermediary to
handle this important function. Emotion and ego
prevent an individual from negotiating as
effectively for himself as he would for others.
Know what form or mix of purchase price
consideration is best for you. Be familiar with
tax, legal and accounting implications.
Determine the items that are important to you
and be prepared to trade off the less essential
ones.
Preparation and planning pay handsome
dividends during the negotiation process. Your
position is supported by comprehensive
documentation. You understand the buyer's
motivations. The transaction progresses
smoothly. You obtain your price. The buyer is
satisfied; he and the business are destined to
prosper.
Summary
The seller who takes a casual approach to
selling, or is waiting for a suitor who will
make an offer that "just can't be refused",
usually loses. Generally the sale is not made or
is made at less than optimum value. Very often
word leaks out that the company is being sold.
Possible results? Loss of employees, business,
credit, etc. that could prove fatal to the firm.
It is no accident that the savvy seller sells
his business at a premium price quickly and
quietly. Preparation and planning result in a
sale that is rewarding financially and
emotionally.
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