SELLING YOUR BUSINESS - BEFORE YOU MUST 

Have you ever thought about the day when you might want to sell your business?  

Unless you plan to leave it in the hands of family members or pass ownership to current employees, you will at SOME point be looking for an outside buyer, in order to transform the results of your years of effort into financial rewards for yourself and your heirs.  

One option is obviously just to wait until that day comes, and handle it then.  

A much better approach is to PLAN the event, and possibly take early steps to begin your separation from the business, to capitalize on those financial gains sooner rather than later.  This activity is known as Exit Planning, but we like to refer to it as Exit Preparation.

If yours is a middle market business with EBITDA in excess of $2mm…

there are likely to be a number of investors who would be interested in purchasing a majority interest in your business, while allowing you to continue to manage it on 

a day to day basis.  In such deals, the investors would be counting on your skills to keep the business on course, to provide them with the desired return on their investment.  They may plan to personally take over its operation some day; or they may intend to hire a replacement when it is finally time for you to move on.  In either case, this approach can provide you with the opportunity to CHOOSE the time to sell, when the financial attractiveness of your business may be at its peak.   

By planning the event, you will have the luxury of time to consider your options objectively.   

This positions you to negotiate the sale more effectively than if you wait and have an unfortunate need  to exit the business quickly due to an unexpected health problem or other personal crisis.   

An additional benefit to bringing in new ownership early can be the funding and other assistance they might be able provide, which could be just what it takes to grow the business beyond its current base of sales and earnings.   

If this approach sounds appealing, where do you go to find out about options?  How do you go about selling all or part of your business?    

The answers certainly depend on the type of business you own, its past financial performance, and the strength of the business plan that you have developed for the future. 

One major factor will be whether your business might possibly attract “strategic” buyers. These are investors or companies that have similar business interests, and may place a high value on your customer base, your market share, or your unique product or service capabilities. They might envision favorable economies that could be realized by combining your business with another one that they already own.  Whatever the motivation, this type of buyer is generally willing to pay a bit more of a premium than will one who is strictly considering a financial purchase.  The down side is that these buyers are often your current competitors.  As such, you take a risk by providing them access to all of your business information that they would need in order to make a decision on such a purchase.  

Financial buyers, on the other hand, are simply going to evaluate your business as a stand alone entity.  They might plan to buy it and run it exactly as you have in the past.  Or they might envision ways to expand it, to cost reduce it, or in some other way to increase its earnings.  

These buyers are typically going to have fairly well defined criteria for the types of businesses they will consider, as well as the financial performance that they expect from an acquisition.    

In either situation, both the actual past performance and future business plans need to be documented in a manner that will readily demonstrate to a prospective buyer that YOURS is the business that they have been looking for, in order to generate the results they desire.  

The sale of a business can be a complex transaction.  You will need to consult with a number of professionals before jumping into such a move too quickly.  Depending upon your particular situation, you should plan to speak in confidence with many - if not all - of the following…   

1. YOUR FINANCIAL ADVISOR 

Your business may be one of the largest components of your personal wealth.  You need to fully understand the implications of its sale on your future living standards, on your long term retirement planning, and on the process of passing your assets to your heirs.  

 2. YOUR CPA OR TAX ADVISOR 

Clearly, before considering the sale of your business, you need to discuss the tax  

consequences of such a move with your advisors.  Timing, and how the sale is structured can have major implications on current and future tax obligations.  It is critical that you fully understand the range of impacts, before structuring the specific terms of how your business will be offered to prospective buyers.     

3. YOUR ATTORNEY 

You will also want to consult your attorney, as the particular manner in which the sale is structured will directly impact many of the liabilities for which you may personally continue to be responsible following the sale.   

 4. BUSINESS BROKERS OR INTERMEDIARIES 

Also, you will want to speak with business brokers and other intermediaries experienced with such transactions, who can assist you in maximizing the net return you realize from the sale.  You should select professionals who are familiar with your type of business, and will be committed to YOUR interests as they interface with prospects on your behalf.   

You clearly want to ensure that ANYONE with whom you speak is obligated to treat your discussions on the subject with utmost confidentiality.  The last thing you want to do is unduly concern your employees, customers, or suppliers by letting information leak out prematurely about your considerations of possibly selling the business.    

If planned correctly, the sale of your business can provide you with the significant rewards that you are due for your years of effort.  But if forced to be executed in a frantic rush, it can prove to be a disappointment to both you and your heirs.   

It is never too early to start planning for a happy future, and POSITIVE Exits can help you in your decisionmaking and also connect you with whatever professional advisors you need to optimize your returns.