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When a buyer for your business knocks on the door …

By , - Last modified: April 17, 2018 at 10:50 AM

In sports, the winning teams are those that assemble outstanding talents and bring them to the playing field.

And the champion features the best and brightest of those talents – from players to coaches to managers to support staff.

There is an analogy when it comes to selling a business. Though one person may have founded and led his or her business, it was the people that entrepreneur pulled together whose complementary talents and expertise ultimately made it a success.

So, when the time comes to sell that business – whether it be a long-planned decision or an unexpected knock on the door, it’s critical to assemble a professional team for optimum results.

Nearly 4.5 million businesses with an aggregate of $10 trillion in valuation will be on the sale block in the coming decade, according to the Exit Planning Institute.

Driving the listings are the mass retirements of baby boomer business owners, folks 53 to 71, with older boomers most likely to sell sooner.

But there’s a caveat: it’s thought only 20 to 30 percent of those firms end up being sold.

STRONG FINANCIALS

Two experts, David K. Clark, a certified business intermediary and owner of BMI Mergers & Acquisitions, which is based in Upper Macungie Township and Cumru Township, and Paula K. Barrett, a certified valuation analyst and a Certified Public Accountant accredited in business valuation in the Wyomissing office of RKL LLP, stress the importance of preparation and assembling a strong team to handle the sale of a firm.

Clark, who has domestic and international experience and has been president of several businesses, noted the value of preparation. That includes the owner’s intent for selling and strong company financials.

“I recommend three years of good financials that are clean and have been reviewed by accountants,” he said. “Buyers like to read good cash flows.”

AESTHETIC APPEAL

Barrett said the more time, the better.

“At least two to three years preparation is usually ideal,” she said. “It starts with getting a good understanding of what the business is worth. I always recommend at least one third-party appraiser or valuation.”

Clark also advised that the aesthetics of a business be strong – equipment clean and in good shape for a production/manufacturing company and attractive offices and well-presented personnel for service firms.

The seller’s intent can center on simply maximizing profit with a clean separation or more of a legacy sale, where concerns include job security for employees, or even a consultant role or employment for the seller’s children.

DETERMINING VALUE

Asking how much the owner believes his/her business is worth can be revelatory – the response is likely to be a financially flawed opinion.

“The rule of thumb is the larger the business, don’t place a price,” Clark said.

For smaller businesses, those grossing $1 million or less in annual revenue, the smartest thing may be to grow it prior to selling.

“We’ve done 20 to 40 deals over the last five years in which the cash flows have been key,” Clark said.

CONFIDENTIAL MEMO

Business brokers have access to databases that enable them to compare companies in a variety of industries to assist with valuation and targeting potential buyers.

BMI compiles a detailed marketing book known as a confidential information memorandum, which is then shared only with potential, screened buyers who must sign a nondisclosure agreement.

“We screen for financial wherewithal and intent,” Clark said. “We want to make sure an offer is legitimate.”

On average, three offers, sometimes out of 50 to 75 inquiries, prove solid.

DUE DILIGENCE

The hundreds of broker hours put into a sale include arranging multiple visits by the likely buyer to understand a company’s culture.

Once a letter of intent is received, brokers arrange for a due diligence time, usually 30 to 60 days, following the signing of a strict confidentiality agreement, Barrett and Clark said.

“We secure a data room [usually online] where all the tax records, employment information and assets are available to the buyer,” Clark said. “At this point, attorneys, accountants, banking and other advisers are involved, and we manage that, as well.

“We’re in the middle of everything; we have to know what’s going on from both sides. Transparency is very important from the broker’s standpoint. That’s where you build trust with the buyers and the sellers.”

LEGAL COUNSEL

Barrett cited the importance of tax attorneys, whose expertise may save a seller and his or her family a lot of money and headaches.

The final transaction may constitute a stock or asset deal.

Barrett and Clark have seen their firms experience more business with the recovering economy.

“In the last two years, there’s definitely been an uptick,” Barrett said. “Many of us have concerns that those thinking about it [selling their business] don’t miss a window. Debt is still relatively cheap, and there is an awful lot of capital – investment cash – that’s available.”

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