Are You Serious?

There are three good questions to consider before selling your business. First, "Do you really want to sell this business?" If you're really serious about selling and have a solid reason (or reasons) why you want to sell, it will most likely happen. Second, "Do you have reasonable expectations?" You increase your chances of selling if you can answer "yes" to this second question. This can include your expectations about the selling price, the time it will take to sell your business, and the amount of seller financing you are willing to offer. Third, "What will you do once your business sells?" The time to consider this is before you place your business on the market. This may seem obvious, but many transactions fall through because the business owner did not consider what he or she would do once the business was sold. A "yes" answer to the first two questions plus having an answer to the third question (other than "I don't know") means you are serious about selling. … [Read more...]

Selling Your Business? Do-It-Yourself is Risky Business!

When the owner of a business makes the decision to sell, he or she is taking a giant step that involves the emotions as well as the marketplace, each with its own set of complexities. Those sellers who are tempted to undertake the transaction on their own should understand both the process and the emotional environment that this process is set against. The steps outlined below are just some of the items for a successful sale. While these might seem daunting to the do-it-yourselfer, by engaging the help of a business intermediary, the seller can feel confident about what is often one of the major decisions of a lifetime. 1. Set the stage. What kind of impression will the business make on prospective buyers? The seller may be happy with a weathered sign (the rustic look) or weeds poking up through the pavement (the natural look), but the buyer might only think, "What a mess!" Equally problematic can be improvements planned by the seller that appeal to his or her sense of aesthetics but … [Read more...]

What Sellers Can Do

In addition to using a business broker, there are specific steps you can take to increase the chance of a successful closing. Know why you want to sell your business. Before placing your business for sale, it is important that you both know why you want to sell your business and that you are certain about this decision. Have a plan for what you will do following the closing. Make sure important parties are on board. The time to discuss the sale of your business, as well as future plans, with partners, spouses, children and other involved parties is before you list. Communicate to your outside advisors that you want the deal to work. Choose your battles. Both buyers and sellers need to be willing to compromise. It is helpful to consider in advance the areas that are most important to you so you can come to the table with a willingness to compromise in other areas. … [Read more...]

And a Letter of Intent Is…

The Letter of Intent (LOI) is a pre-contractual written instrument prepared by the buyer for the seller, which is usually the preliminary understanding of both parties. The Letter of Intent can also be called Agreement in Principle or Memorandum of Understanding. They all have the same general meaning and lay out the following: What is being purchased and what is not, how much will be paid, and the general terms. It is also meant to be non-binding (more on this a bit later) on either the sell side or buy side. In any event, most transactions are started with an LOI. The LOI precedes the Acquisition Agreement, better known as the Purchase and Sale Agreement. It is a non-binding agreement subject to the buyer obtaining satisfactory due diligence by both parties. This is how the LOI has been defined by Stanley Foster Reed, author of The Art of M&A: “A Letter of intent is a pre-contractual written instrument which defines the respective preliminary understandings of the parties … [Read more...]

Selling Your Business? Not So Fast

Most individual company owners only sell one business in their lifetime. A corporate buyer, however, may have been involved in quite a few transactions – some that worked and some that did not. What does this mean for the seller? The acquirer may have an experienced team or have been through the business transaction process more than once resulting in a lopsided contest -- the amateur (the seller) versus the professional (the acquirer). Selling a business is not like selling real estate. Confidentiality is, in most cases, critical. A seller does not want employees, suppliers, and customers/clients to be aware of a possible sale. The sales process also cannot distract the owner(s) from managing the day-to-day operation of the business. Real estate is also much easier to finance than a business purchase, unless the acquirer is a first-rate company. It is important that sellers do their own due diligence on a prospective acquirer to make sure that the acquirer can complete the … [Read more...]

Why Deals Fall Apart

There are lots of reasons why the sale of a business falls apart. The reasons can be grouped into four major categories: those caused by the buyer; those caused by the seller; those caused by a third party; and those caused by “acts of fate”. (Anything that does not fit the first three categories can be lumped into this fourth category of things that just happen.) Sellers Some sellers really don’t a valid reason for selling. Without a strong commitment to selling, a deal is very difficult to hold together. Some sellers are just testing the waters. Others are holding out for a price that is just not supportable by the numbers. Sellers who didn’t check with their tax advisors or other outside advisors may be in for some surprises forcing them to withdraw from a pending sale. An unusual, but common, reason is that the seller panics about what they will do once the business is sold. Buyers One could almost change the Seller’s information above and label it Buyers. Buyers may discover … [Read more...]

Pre-Sale Tuneup

Business owners are often asked, “Do you think you will ever sell your business?” The answers vary from: “Only when I can get my price” to “Never” to a realistic “I don’t really know” with everything else in between. “When will you sell your business?” is often asked, but very seldom answered. Certainly, misfortune can force the decision, but no one can predict this event. Most don’t believe or accept the old expression that advises, “It is always a good idea to sell your horse before it dies.” There is an also an old adage that says: “You should start planning on exiting your business the day you buy or start one.” You can’t predict misfortune, but you can plan on it. Unfortunately, most sellers wait until they wake up one morning, and just drive around the block several times working up the courage to begin the day working in their business. This is a common sign of “burn-out” and is an-going problem with small business owners. Or, they face family pressure to start “taking it … [Read more...]

Thinking About Selling?

Here are some tasks business owners should consider completing before going to market to help their businesses sell. Remove any items not included in the sale. That family heirloom portrait behind the counter of Grandfather William, founder of the business, should be removed. Remove or repair any non-functioning equipment. Prepare an operations manual to show a new owner all the functions of the business, how things are done, the major customers and suppliers, samples of advertising, and any other information that would help a new owner manage and operate the business. Take care of any outstanding bills and resolve any legal, tax, or governmental issues. Bring your financial statements up to date, and have your accounting professional prepare them for a buyer’s inspection. Clean up the business inside and out. Fill the shelves, clean up the inventory, and paint the interior if necessary. … [Read more...]

When Is the Best Time to Sell Your Business?

Many experts say that the best time to sell is when the business is better than it’s ever been. This may be good advice, but few follow it. Why sell when business is good? You just suffered through a few not-so-great years and now the experts are telling you to sell? Right or wrong – good or bad – the decision to sell is generally event-driven. For example: declining health, a partnership break-up, personal issues, too much competition, family member elects not to purchase the business, etc. Retirement sounds like a good reason, but it has no time pressure, unless a seller has made the decision to retire at a certain age.  Even then, when the seller realizes that he or she will have nothing to do after a sale...the idea loses its appeal. However, one thing that a seller can do, without creating any pressure about selling or not selling, is to take a bit of time every year and prepare – just in case. This means tying up loose ends. Make sure financial records are current and complete, … [Read more...]

Confidentiality Agreement – What Is It ?

Confidentiality Agreement - A pact that forbids buyers, sellers, and their agents in a given business deal from disclosing information about the transaction to others. It is common practice for the seller, or his or her intermediary, to require a prospective buyer to sign a confidentiality agreement, sometimes referred to as a non-disclosure agreement. This is almost always done prior to the seller providing any important or proprietary information to a prospective buyer. The purpose is to protect the seller and his or her business from the buyer disclosing or using any of the information provided by the seller and restricted by the confidentiality agreement. These agreements, most likely, were originally used so that a prospective buyer wouldn't tell the world that the business was for sale. Their purpose now covers a multitude of items to protect the seller. A seller's primary concerns are to insure that a potential buyer doesn't capitalize on trade secrets, proprietary data or any … [Read more...]