|
Home
| Site Map
| Contact Us
| Press Room
|
|||||
| Consulting | M&A | Education | About Wasmer | Library | |
|
|
Knowledge BaseSo You Want To Sell Your Business?By: Kenneth J. Wasmer
Do you have an exit strategy? From the moment you start, or purchase, your business you should be developing an exit strategy. An exit strategy is a plan to transition the business to a new owner, whether that be passing the company on to your family, selling to employees, selling to an outsider, or simply liquidating the assets. Maximizing your sales price is not an easy task. Much planning and hard work will be needed to be successful. One of the key factors in successfully selling your business is understanding the process of selling your business. The following is a step-by-step guideline to successfully selling your business.
If you are like most business owners you will have those days when working for someone else or being a beach bum is probably the foremost aspiration on your mind. Just think, no more employees! No more finance company! No more backorder problems! No more obsolete inventory! No more cash flow issues! Yet, if you are like most business owners, you will quickly be back in the saddle figuring out the next pressing business issue, and loving it. Selling your business is not something you do because you had a bad day. It is something that will require tremendous soul searching. It is an emotional decision for most owners to sell the business that they created with an unbelievable amount of blood, sweat and tears. It is their "baby".
Then you have to ask your self "What will you do if you sell the business?" Are you going to retire? Buy another business? Can you really work for someone else? Do you want to stay with the business and work for the new owner? Are you just going to take a year or two off and get refreshed? Are you selling for financial reasons? Personal reasons? A dispute with a partner? Burnout? An illness? The need to spend more time with your family? All of these questions need to be evaluated and answered. Understanding your motivations is an absolute necessity because you want the deal structured to meet your needs.
Once you have made the decision to sell your business, who do you go to for help? Naturally, you could try to sell the business yourself. Most experts agree that this is potentially an unwise move. As a general rule, the price of your company is going to be driven by your company's earnings performance. If the owners (who usually are key managers in the organization) are focused on selling the business, can they really keep the business performing at the same level? Or, will the performance of the company suffer and will this result in a lower purchase price?
The following are the various agent/broker relationships that you may enter into:
Seller's Agent: A seller's agent is employed by and represents only the seller in the transaction. A seller's agent's fee is normally paid out of the proceeds of the sale of the business. A seller's agent may work with a buyer in presenting the business for sale, but will be an agent or a sub-agent of the seller and will represent the seller's best interests.
Buyer's agent: A buyer's agent is employed by and represents only the buyer in the transaction regardless of whether the fee is paid by the seller from the proceeds of the sale of the business or directly from the buyer.
Transaction Broker: A transaction broker will assist both the buyer and seller in a transaction without being an agent or advocate for either party. Essentially, a transaction broker will facilitate the transaction.
Dual Agency: The dual agent represents both buyer and seller equally. Dual agency is permitted as long as all parties give their informed consent.
Listing Service: A listing service will simply list your business for sale and act as a referral source. Most listing services will not represent either the buyer or seller and will not become involved in the transaction.
As a practical matter, if you are seriously considering selling your business, your best choice would be a seller's agent, but a seller's agent will probably be the most expensive. However, in a transaction of this size, it is better to have the agent working solely in your best interests, rather than for the buyer.
The next step in the sales process is the valuation. A valuation will give you an estimate of what your business is worth. As in selling your home, it is important to properly price your business. If you overprice your company you will most likely scare off prospective buyers. Overtime, your business may potentially become stigmatized. Price the business too low and you may get a quick sale but you will not maximize your value. Pricing too low could also have a negative impact on prospective buyers in the sense that it may raise a question as to why the price is so low causing the buyer to think there must be something wrong!
But a valuation will do more than just help you set a realistic sales price. The valuation will help you understand the determinants of value and give you a road map to ways of improving your company in order to improve its chances of selling as well as the ultimate sales price. The valuation will also give you an excellent view into how a prospective buyer may be looking at your company. With this knowledge you can develop a strategy for positioning your company in order to emphasize its strengths.
This phase is overlooked all too often. Let's take a look at selling your house. Should you paint the house? Should you finish off the basement? What about adding landscaping? Do you remodel the kitchen? Certain "improvements" will help the value of the home. Certain other improvements will not increase the price but will make the home more readily marketable and other improvements will be wasted and may even detract from the value. Preparing a business for sale is the same principal only more complicated.
Careful analysis of the value of the business should give you an indication of the areas to focus on in preparing the business for sale. Should you invest in a new accounting software package? Do you expand into the neighboring market? Should you reduce staff? Take on another product line? Consolidate facilities? Enter into a long-term lease? All of these questions could be answered yes or no depending on circumstances. By understanding the determinants of value you should be able to develop a plan to maximize the value of the business.
This is the collection and presentation of relevant information to increase a prospective buyer's interest in your organization. Examples of relevant information include a description of your facilities, market demographics, employee base, authorizations, financial information, etc. Effective packaging attracts qualified buyers, reduces repetitive information gathering, adds consistency, and shortens the time buyers might take for making an offer. The package is essentially your proposal to the buyer. Look at it this way, how much time would you and your staff spend on a proposal to a potential customer that may increase your sales by 25%? Many resellers will spend days and even weeks on a customer proposal but will throw together a package for a prospective buyer in less than an hour.
Prospecting is the act of proactively finding qualified prospective buyers with an interest in acquiring your company. There are many areas that must be considered such as: Is the buyer financially capable? Is the buyer serious? Is there a strategic benefit? Financial? Personal? Needs one statement
Negotiations can consist of meetings, phone calls, correspondence, contract review, etc. with all buyers, attorneys, accountants, and other parties on both sides of the transaction. Tours of your facility are an essential selling tool and a way to negotiate an attractive offer. Virtually every deal is unique, from down payments to earn-outs and from assets/stock sold to liabilities assumed and financing provided. There are an unlimited number of ways to structure any deal and the negotiation phase is an opportunity to strike a deal that works for both you and the buyer.
Due Diligence is a critical step that prospective buyers can perform. Due diligence could include a detailed audit of your books and records to determine their accuracy and that the business drivers are as represented. The seller can also conduct a due-diligence review of the prospective buyer to determine the prospective buyer's ability to perform the obligations spelled out in the contract.
This is the most important step of the transaction. You have a letter of intent from a prospective buyer and have agreed to the basic structure of the deal. The closing moves the transaction from a letter of intent to the closing table. The closing is where the assets, or stock, of the business are legally transferred to the buyer.
Most people feel the closing is the last step in selling a business. Unlike selling a car or a home, selling a business will many times not be "finished" at the closing table. For example, most agreements will require some form of non-compete payment or some sort of seller financing. There may also be a number of contingencies that will need to be cleared or earn-out payments based on future performance that must be paid. These are just a few examples of why the "deal" is usually not finished at closing. Understanding the duties and obligations of each party after closing is essential to making the deal work. And, lastly, making sure there is an orderly and effective transition of employees and customers will only solidify the deal and insure its success.
Selling your car may take a few weeks to a month. Selling your house may take one to six months, sometimes longer. Selling your business can take up to a year or two. The more you understand the process of selling your business the better chance you may be able to shorten the sales cycle and maximize your sales price.
|
Education |
