Prepare Your Business for Sale

Posted by: Today's Tip Contributor on May 3, 2010

Selling your business is likely the largest financial transaction you will ever make. This is not the time to take short cuts, and it is critical use the same care and patience it took to grow and sustain your business.

What steps should be taken to prepare your company for sale?

1. Determine the company’s actual worth. There are many formulas for valuing a business. The sale price depends on such factors as sales, profits, business fundamentals, future prospects, client concentrations, and others. A third-party independent valuation is one of the most reliable methods of establishing a market value for your business.

2. Be sure your records are up to date. You want all your hard work to pay off in the sale, so be sure you have detailed financial and company records that provide an accurate assessment of the company’s financial position.

3. The staff is an important asset. The loss of key employees during a sale can kill a deal. Key employees may be crucial to the ongoing success of the company. Do everything possible to train and properly compensate your best personnel to ensure they will be motivated to work with a new owner.

4. Client diversification. Ensure that your client base is solidified and all contracts are up to date and renewed. If you have any clients who represent more than 10% of your business, now would be the time to add new clients, in order to minimize the potential impact that the loss of one large client could have on your business.

5. Assemble a team of experts. No matter how independent you are, the sale of a business is not something to handle on your own. A good team should consist of a business intermediary, transaction attorney, and accountant. The performance of the company during the time it is on the market is crucial, so working with a transaction team will allow you to focus on the ongoing operation of the company while the team handles the sale.

Domenic Rinaldi
President and Managing Partner
Chicagoland Sunbelt
Chicago

Reader Comments

dom

May 4, 2010 9:24 AM

Wow, this article couldn't be more general, simple, obvious and useless

Prof P.Madhu Sudana Rao,Ethiopia

May 5, 2010 5:10 AM

A running business may have to be sold due to various reasons some of which are beyond the control of any. Some of the important reasons may be due to sickness, old age, loss suffering or children settling abroad or more profitable outside activity etc. Any business has to be sold without causing any inconvenience to partners, employees, suppliers or anybody connected to the organization. It should be a smooth transfer and changeover of management. In corporate sector it is easier to transfer ownership than in partnership and proprietary concerns.


The process can be started with accounting firms, business brokers, investment bankers, and lawyers with whom you have worked, particularly those with knowledge of your industry. Some can even help you refine your approach to the sale at the same time they are connecting you with potential buyers. They will be in touch with buyers who are looking for opportunities. Each of these sources of deal opportunities has different strengths and motivations for helping you in your search.
You are astute to the fact that the best way to ensure you gets the maximum price for your business is to
1) Sell when you do not have to sell, and
2) Sell when there is more than one buyer at the table.
You have addressed the first point, giving you a stronger foothold in negotiations. However, the second point is important as well. Keep in mind that you may not necessarily want to initiate the sales process with a buyer when your only other option is to hold on to the company. Approaching several buyers at the same time to create an auction process can give you even more leverage, resulting in higher value.
A process managed by an intermediary is conducted confidentially and professionally and should achieve the best overall results for you-whether the ultimate offer is from your competitor or from another buyer.
If you remain convinced that your competitor is the best buyer, make sure you have prepared yourself for the process before initiating discussions with him. At the very least, you may want to think about obtaining a valuation for your business. A valuation provided by an experienced, knowledgeable third party would provide you with a good benchmark against which to gauge offers. Retaining an intermediary to help you with negotiations with your competitor may not be a bad idea either, even in the absence of multiple buyers. Again, the hiring of an expert may make your competitor think twice before he puts forth a lowball offer or unreasonable terms. In addition, an intermediary will be able to guide you through the mergers and acquisitions process-from the instatement of a nondisclosure agreement (NDA) to help in structuring a transaction. You will want to consult with your financial advisor before entering into the negotiation process as well to gain an understanding of potential tax issues related to deal structure options.
Once you have armed yourself with information, including the valuation, proper advisors and knowledge of your personal tax situation, you can approach your competitor. If you are concerned about his response and/or a leak of information, you may be able to test the waters through a conversation about future exit strategies. Perhaps you can approach him with the angle that you are planning your exit strategy in the next five to seven years, and you're wondering whether he may be interested in purchasing your firm at that time. In this manner, you can broach the subject without creating an air of immediate need. If conversations proceed beyond cursory levels, make sure you obtain a signed NDA before revealing too much about your business.

Experts say the best way to ensure you leave your company when and how you want--with money in hand--is to start plotting your exit strategy now, even if you’re still developing the business plan. Sadly, study after study shows that a majority of entrepreneurs have no exit strategy whatsoever in place.

If your hope is to keep the business in the family, experts say the time is now to have the tough conversations with your spouse and children about whom you want to succeed you--and if they’re even interested in the job.

"If you have buyers coming to look at your business, one of the first things they’re going to ask is 'Have you talked to your family about this?'"
"One of the greatest mistakes people make is assuming that a family member will want to or be able to take over the business.
If you do see selling as your exit, you need to focus your energy on creating a business that buyers will want. This means working on your profitability, competitive edge, sustainability, scalability and corporate culture People will be banging down the door to buy the company.

As glamorous as selling your business may sound, entrepreneurs who’ve been there will tell you that it’s an incredibly stressful, time-consuming process fraught with dozens of moving parts and truckloads of paperwork. If you don’t hire the right financial, legal, tax and business advisors to help shepherd the sale through, you’re doing yourself a great disservice.
The worst time to sell a business is when you absolutely have to sell. Most buyers can sense fear and desperation, so if you don't come across as level-headed and under control, they will likely exploit every weakness to gain leverage in a transaction. Unfortunately, this is a rather common scenario in today's market; many business owners are struggling financially and are anxious to sell their businesses, but are having a tough time doing so. The best time to sell the business is at a stage when it is highly profitable.

Prof P.Madhu Sudana Rao,Ethiopia

May 8, 2010 12:45 AM

A running business may have to be sold due to various reasons some of which are beyond the control of any. Some of the important reasons may be due to sickness, old age, loss suffering or children settling abroad or more profitable outside activity etc. Any business has to be sold without causing any inconvenience to partners, employees, suppliers or anybody connected to the organization. It should be a smooth transfer and changeover of management. In corporate sector it is easier to transfer ownership than in partnership and proprietary concerns.


The process can be started with accounting firms, business brokers, investment bankers, and lawyers with whom you have worked, particularly those with knowledge of your industry. Some can even help you refine your approach to the sale at the same time they are connecting you with potential buyers. They will be in touch with buyers who are looking for opportunities. Each of these sources of deal opportunities has different strengths and motivations for helping you in your search.
You are astute to the fact that the best way to ensure you gets the maximum price for your business is to
1) Sell when you do not have to sell, and
2) Sell when there is more than one buyer at the table.
You have addressed the first point, giving you a stronger foothold in negotiations. However, the second point is important as well. Keep in mind that you may not necessarily want to initiate the sales process with a buyer when your only other option is to hold on to the company. Approaching several buyers at the same time to create an auction process can give you even more leverage, resulting in higher value.
A process managed by an intermediary is conducted confidentially and professionally and should achieve the best overall results for you-whether the ultimate offer is from your competitor or from another buyer.
If you remain convinced that your competitor is the best buyer, make sure you have prepared yourself for the process before initiating discussions with him. At the very least, you may want to think about obtaining a valuation for your business. A valuation provided by an experienced, knowledgeable third party would provide you with a good benchmark against which to gauge offers. Retaining an intermediary to help you with negotiations with your competitor may not be a bad idea either, even in the absence of multiple buyers. Again, the hiring of an expert may make your competitor think twice before he puts forth a lowball offer or unreasonable terms. In addition, an intermediary will be able to guide you through the mergers and acquisitions process-from the instatement of a nondisclosure agreement (NDA) to help in structuring a transaction. You will want to consult with your financial advisor before entering into the negotiation process as well to gain an understanding of potential tax issues related to deal structure options.
Once you have armed yourself with information, including the valuation, proper advisors and knowledge of your personal tax situation, you can approach your competitor. If you are concerned about his response and/or a leak of information, you may be able to test the waters through a conversation about future exit strategies. Perhaps you can approach him with the angle that you are planning your exit strategy in the next five to seven years, and you're wondering whether he may be interested in purchasing your firm at that time. In this manner, you can broach the subject without creating an air of immediate need. If conversations proceed beyond cursory levels, make sure you obtain a signed NDA before revealing too much about your business.

Experts say the best way to ensure you leave your company when and how you want--with money in hand--is to start plotting your exit strategy now, even if you’re still developing the business plan. Sadly, study after study shows that a majority of entrepreneurs have no exit strategy whatsoever in place.

If your hope is to keep the business in the family, experts say the time is now to have the tough conversations with your spouse and children about whom you want to succeed you--and if they’re even interested in the job.

"If you have buyers coming to look at your business, one of the first things they’re going to ask is 'Have you talked to your family about this?'"
"One of the greatest mistakes people make is assuming that a family member will want to or be able to take over the business.
If you do see selling as your exit, you need to focus your energy on creating a business that buyers will want. This means working on your profitability, competitive edge, sustainability, scalability and corporate culture People will be banging down the door to buy the company.

As glamorous as selling your business may sound, entrepreneurs who’ve been there will tell you that it’s an incredibly stressful, time-consuming process fraught with dozens of moving parts and truckloads of paperwork. If you don’t hire the right financial, legal, tax and business advisors to help shepherd the sale through, you’re doing yourself a great disservice.
The worst time to sell a business is when you absolutely have to sell. Most buyers can sense fear and desperation, so if you don't come across as level-headed and under control, they will likely exploit every weakness to gain leverage in a transaction. Unfortunately, this is a rather common scenario in today's market; many business owners are struggling financially and are anxious to sell their businesses, but are having a tough time doing so. The best time to sell the business is at a stage when it is highly profitable.

Frank Fitton

May 30, 2010 1:21 PM

Eventually the time comes when a decision has to be made of whether or not it’s the right time to sell your business. Once you decide that it’s the right, and then you have to make sure you get the best price possible for your business. Certain procedures have to be followed to ensure that your business is in a sellable state.

Anyone interested in the selling of a business should check out The Business Seller Advocate blog at http://www.businessselleradvocate.com/ . It is a great blog full of must have knowledge for anyone thinking about taking the plunge. It’s frequented by quite a few experts in various aspects of the field that can help you with any questions you might have or perspective you might need.

Selling a business very well could be the most important decision you ever make in your life. You have to make sure you sell your business the right way.

Why do all the work yourself digging through all of the countless number of businesses out there for sale at the present time. Instead let someone else do all the work for you.

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