Thinking of Selling?

HELP FOR SELLERS

OVERVIEW

The decision to sell one’s business is a significant one, and in most cases is the most important financial decision of a business owner’s life. There are many factors to be considered and planned for; yet, many business owners do not even think about these issues until they are ready to sell their company. This is an area in which we can provide assistance-merger and acquisition professionals are experienced in dealing with and addressing the many details and issues that are part of this process. We can provide information and guidance, help you avoid potential pitfalls that might occur, market your company in an effective yet confidential manner, and assist with negotiations.

This article includes important information and key considerations for business owners who are considering the sale of their company now or in the near future. Even if you are planning to transfer ownership of your business to your children, there are factors that need to be reviewed. It is our hope that the information in this article will assist you.

WHY SELLERS SELL

There are many reasons why business owners decide to sell as every individual and his/her situation is unique. Some of the more common reasons for the sale of a business include:

Financial difficulties or uncertainty
Burnout/boredom
Estate considerations
Lack of management succession
Old age or poor health
Desire to diversify holdings
Profit taking
Industrial or technological change
Unbalanced product line or change in market

WHY BUYERS BUY

Just as there are many different reasons that sellers decide to sell, there are a variety of reasons that motivate individuals to buy a business. Some common reasons include:

The desire to have a business of one’s own, rather than working for someone else
The company is a good investment
Desire to enter a certain industry or field
Product or service diversification
Acquisition of certain equipment or access to new markets
Growth of an existing business (by combining two companies into one)
Elimination or reduction of competition

FOUR WAYS TO SELL YOUR BUSINESS

There are four basic ways to sell your company. These include:

Transferring ownership of the business to your children or other family members.
Selling the business to an employee or key manager. Unfortunately, these individuals often do not have sufficient funds to purchase the company.
Selling the business to an outsider. This is by far the most common scenario.
Liquidating the assets of the company. This is usually the least desirable option and a last resort when the business cannot be sold by other means.

ESTABLISHING YOUR OBJECTIVES

Requirements Common to all Sellers:

To sell quickly
To sell at an agreeable price
To agree upon favorable, practical, and reasonable terms

Individually Determined Considerations

To remain with the company or to leave
How the best structure the sale from a tax standpoint
To sell on a lump sum or installment basis
Length of time and degree of involvement after the sale is completed

Things to Remember

The longer a company remains on the market, the more likely it is to decrease in value.
Price is important, but terms can make the deal
The retention of key management can sometimes be a condition of purchase
The buyer may request a non-compete agreement form the seller

POSITIONING THE COMPANY... FOR SALE

Continue to operate the company as a going concern or it will start to decline.
Be able to give specific, logical reasons for selling.
Be willing to note the pros and cons of owning the business, as a balanced appraisal will enhance your credibility with a potential buyer.
Clean up the premises.
Clean up the books – go after past due receivables, clear up loans to officers, sell off old inventory, trim payroll if needed, etc.
Purchase minority interests – they can cause complications that can break a deal.
Make a list of all tangible assets and/or equipment and consider having them appraised. Determine which are to be sold and which are to be retained (if any).
Examine leases and contracts for transferability. Also, investigate all areas of possible successor liabilities – these can be deal breakers.
Have on hand three years of properly prepared financial statements and the corresponding state and federal tax returns. Have your accountants prepare a statement that shows the company’s adjusted pre-tax earnings for the past three years.
Speak with us about the process we use to market a company. Empire employs a variety of methods to locate potential buyers in a systematic yet confidential manner. Buyers are carefully screened and confidentiality agreements are utilized.
Consider having a valuation of the company done by a licensed business valuator; also, understand that what you think your company may be worth and what the market is willing to pay for it may be two different things. Terms can be a significant factor in the structure of the sale of a business. Be willing to keep an open mind and work with an organization such as Empire, who can explain your options thoroughly.

SOME COMMON QUESTIONS

Many business owners contemplating the sale of their company have a number of questions. These may include:

How long will it take to sell my business?
Will I need to provide owner financing?
Should I tell my employees?
What about confidentiality?
What are the tax considerations of this transaction?
What happens when there is a buyer for my company?
What is the difference in an asset sale vs. a stock sale?
What can I do to help sell my business?

With our years of experience, we can help guide you through these difficult questions and concerns and help make this emotional undertaking as painless as possible.

SOME COMMON “DEAL KILLERS”

Disagreement among the selling company’s owners regarding the conditions and terms of the sale.
Incomplete disclosure of records resulting in last minute surprises.
Overprotective legal counsel.
Risks associated with environmental issues (i.e., hazardous waste or toxic fumes).
Labor problems (including claims by former employees).
Pension plan and other post employment liabilities.
Non-transferability of leases, loans, contracts, and personal guarantees.

SETTING THE ASKING PRICE

The acquisition process is time consuming and expensive. Serious buyers pay little attention to overpriced companies. Thus, the seller’s asking price should be well thought out and carefully established.
Once the approximate value has been determined, the asking price and “lowest acceptable price” can be set for purposes of negotiation. There are several things to keep in mind:

The best time to sell is when the company is most profitable. While it is tempting to hold on to the business and wait to sell in a period of decline, a downward trend in sales or profits will affect the asking price.
Buyers do not generally pay for “potential.” The pre-tax profits of your most recent years will carry the most weight.
The prevailing market conditions must be taken into consideration.

The valuation of closely held companies is highly subjective. This is another area where our expertise can help you in determining how to structure the transaction to best meet your needs and objectives.

MENTALLY PREPARING YOURSELF

Critically evaluate your personal and corporate needs.
Do not allow a temporary problem to cloud your judgment.
Stop viewing the company as an extension of yourself.
Keep your thinking flexible so that you are able to explore new ideas.
Determine whether or not you really want to sell, then commit yourself to action. Remember that the sale of a business involves a significant time commitment on the part of both parties.
Accept the fact that others may have a totally different perception of your company’s value.
Be prepared to compromise.
Expect the exhaustive investigation by the buyer. Do not take negative comments personally.

A FINAL NOTE

Selling a company that may have taken a lifetime to build is too important a task to leave to chance. To ensure that your goals and objectives are met, it is important to proceed in an organized and systematic manner. The issue can be complex, so select the best professional advisors available.