Selling Your Business
At one time or another all of us who own our own business will need to sell the business. So what does the small operator need to do to sell a business? Well, it’s a lot like selling you home. You need to clean it up and fix what is wrong so it can appear in its best light.
Cleaning Your Business Up:
You have become used to the eccentricities of operation and relationships are often more casual than formal; that has to be sorted out. Let’s take a look at some common problems.
Business structure: Is the current structure in which the business is owned the most efficient structure for a sale? Is it even up to date with filings, minutes, records of decision made etc…? Also, if you do sell is it the right set up for you for sale and tax efficiency?
Employment Agreement: Will key employees stick around once they find out the business is changing owners? What will keep them from leaving, or competing with the business? Will they have incentive to stick around and help the business to become successful after the sale? Many a company owner did not think of key employees leaving, moving to competitors or even more frustrating setting up a competing business. Not only must you address this in the agreements but also in person.
Financial Records: If you are like many small business owners you do your best to operate as much of life as possible with pretax dollars as to opposed to post tax dollars. These arrangement need to be flagged. Also many a business that collects cash – ahhh – some of that never gets reported. If you are selling a business at a multiple of sale or earnings then each dollar you leave in will return a significant multiple to the seller. Lastly, do have a professional recast the statements with all of the proper footnotes and disclosures.
Intellectual Property and Critical Information: This represents a significant portion of the value of most business and now over 80% of the S&P 500 balance sheets are intangible assets. How have you identified the intangible assets and critical information of the company? How have you protected these valuable assets? It is not enough to have protection in employment agreements; it needs to be a very comprehensive identification and categorization of these assets so they can enumerated when the sale time comes.
Family Ownership: Many family businesses fail after they are sold. The comradery or abuse that often drives these businesses forward is lost. This must be prepared for and addressed. Also, consider selling the business to the family members or employees. This may not get you the cash you want now, but it is being sold to people who understand your business.
Look at the different lines of business you offer. Might you harvest more value by separating the different lines and selling them separately?
Look at your business from the point of view of a buyer. What would you like to see? If you cannot articulate this, higher someone as a faux buyer to whip you into shape.
The key is to know your vulnerabilities and strengths so they be addressed and presented.
Review contracts with suppliers, vendors, insurers and creditors. Do any of these agreements expire soon, can they be renewed or extended? Also do any of the agreements have acceleration or voidable clauses upon a change in ownership or control? It is good idea to read them now.
Keep management focused on the business and keep them out of any sale – other than to apprise them of progress of lack of progress. You must keep management and workers motivated and not distracted by the process or by “what-iffing” all day long and wasting time on meaningless apprehensions. Communicate – yes, involve no – keep people focused on business.
Transitions are difficult for all- for you, the new owner, the employees and for customers and suppliers. Know that and take time in the transition to work with the new owner. In the beginning you will hold their hand, then you will a coach, then you will help to put transition fires out, and only then will you be the owner emeritus.
Think also very carefully of your own financial well being before the sale for post sale execution of the plan and your next adventure.