The first key is to have your accountant take a look at your accounting procedures and make recommendations on how to improve them.  He or she may also help in preparing financial projections for the coming year(s).  Getting your company’s financial house in order is very important in establishing the value of your firm. The second key is to review the reputation, image, and marketing materials of your company.  Certainly, the quality of your product or service is paramount, but how your firm presents itself to customers, clients, suppliers, etc. – and the outside world – is also very important.  The appearance of your facilities and customer services – beginning with how people are treated on the telephone or in the waiting/reception area – are the kind of first impressions that are critical in dealing with your customers or clients.  Don’t forget about the company’s Web site; in many cases, it is the initial introduction to your company.  Now may also be the time to update your … [Read more...]

Every company has weaknesses; the trick is to fix them.  There is a saying that the test of a good company president or CEO is what happens to the company when he or she leaves.  Some companies--on paper--may look the same, but one company may be much more valuable due to weaknesses in the other company.  Not all problems or weaknesses can be resolved or fixed, but most can be mitigated.  Fixing or lessening company weaknesses can not only significantly improve the value, but also increase the chances of finding the right buyer.  Here are some common weaknesses that concern some buyers, causing them to look elsewhere for an acquisition. “The One Man Band” Many small companies were founded by the current president, and he has made all of the major decisions.  Since he has not developed a succession plan, there is no one in place to take over if he gets hit by the proverbial truck.  He is the typical one man band; and, as a result, the company is not an attractive target for … [Read more...]

Companies can be in trouble or headed for it for many reasons.  However, most of them can be linked to one or more of the following: • Lack of proper focus • Poor management • Poor financial controls • Loss of key employee(s) • Loss of important customer(s)/client(s) • Not keeping up with technology • Quality control or other operating issues • Legal or governmental issues • Target market change or shift • Competition Unfortunately, by the time a business owner realizes that the business is in trouble and recognizes why, it may already be too late. The obvious solutions are to either fix it or sell it.  The decision should be made quickly, since time may be of the essence. Unfortunately, too many owners of privately held businesses wait too long.  A decision to sell should be made when the business is doing well, not when it is in trouble. Now may be the time to check with a professional intermediary to see what you can do to prepare your business for sale. … [Read more...]

In the proverbial “perfect world,” business owners would plan three to five years ahead to sell their companies.  But, as one industry expert has suggested, business owners very seldom plan to sell; rather, selling is “event driven.”  Partner disputes, divorce, burn-out, health, and new competition are examples of events that can force the sale of a business. Sellers often find, after they have decided to sell, that the unexpected happens and they are “blindsided” and caught off-guard.  Here are a few of the unexpected events that can occur. The Substantial Time Commitment Sellers find that the time necessary to comply with the requests of not only the intermediary, but also the potential buyers can take valuable time away from the actual running of the business.  The information necessary to compile the offering memorandum takes time to collect.  Many sellers are unaware of the amount of their time necessary to gather all the documents and information required for the offering … [Read more...]

Valuation of private companies is much more subjective than public companies because there is no free trading marketplace for the private companies’ stock.  Just like a champion Olympic figure skater, the performance has to be flawless.  Take a look at the following check list – see if the target company rates near perfect (on a scale of 1 to 10 – 10 being best): • Stable Market • Stability of Earnings Historically • Realized Cost Savings After Purchase • No Significant Capital Expenditures Herewith • No Significant Competitive Threats • No Significant Alternative Technologies • Large Market Potential • Reasonable Market Position • Broad-based Distribution Channels • Synergy Between Buyer and Seller • Sound Management Willing To Remain • Product Diversity • Wide Customer Base • Non-dependency on Few Supplier … [Read more...]

Who best understands my business? When interviewing intermediaries to represent the sale of your firm, it is important that you discuss your decision process for selecting one. Without this discussion, an intermediary can’t respond to a prospective seller’s concerns. Are there any potential buyers? When dealing with intermediaries, it always helps to reveal any possible buyer, an individual or a company, that has shown an interest in the business for sale. Regardless of how far in the past the interest was expressed, all possible buyers should be contacted now that your company is available for acquisition. People who have inquired about your company are certainly top prospects. Lack of communication? It is critical that communication between the seller, or his or her designee, and the intermediary involved in the sale, be handled promptly.  Calls should be taken by both sides.  If either side is busy or out of the office, the call should be returned as quickly as possible. Does … [Read more...]

• They neglect to run their business during the sales process. – The owner of a business with sales under the $20 million range can get so involved in the selling process that they neglect the day-to-day operation of the business. • They don’t understand the “real” value of their business. – A business may actually command a higher price than the value determined by an appraiser.  The business may be worth more than the sum of its parts.  A professional intermediary, along with other advisors, can answer the question of real value and help determine a “go-to-market” price. • They aren’t flexible in structuring the transaction. – In many cases, how the deal is structured is more important than the price or terms. • They are not looking at the business from a buyer’s perspective. – Buyers may look for different aspects of a business than those the seller looks for.  For example: growth potential, management depth, customer base, etc. • They start with too high a price. – Sellers … [Read more...]

Since one often hears the term “fair value” or “fair market value,” it would be easy to assume that “fairness opinion” means the same thing.  A fairness opinion may be based to some degree on fair market value, but there the similarities end.  Assume that you are president of a family business and the other members are not active in the business, but are stockholders; or you are president of a privately held company that has several investors/stockholders.  The decision is made to sell the company; and you as president are charged with that responsibility.  A buyer is found; the deal is set; it is ready to close -- and, then, one of the minority stockholders comes out of the woodwork and claims the price is too low.  Or, worse, the deal closes, then the minority stockholder decides to sue the president, which is you, claiming the selling price was too low.  A fairness opinion may avoid this or protect you, the president, from any litigation. A fairness opinion is a letter, usually … [Read more...]

Many business owners are unfamiliar with the dynamics of selling a company, because they have never done so. There are numerous possible “deal breakers.”  Being aware of the following pitfalls and their remedies should help prevent the possibility of an aborted transaction. Neglecting the  Running of Your Business A major reason companies with sales under $20 million become derailed during the selling process is that the owner becomes consumed with the pending transaction and neglects the day to day operation of the business.  At some time during the selling process, which can take six to twelve months from beginning to end, the CEO/owner typically takes his or her eye off the ball.  Since the CEO/owner is the key to all aspects of the business, his lack of attention to the business invariably affects sales, costs and profits.  A potential buyer could become concerned if the business flattens out or falls off. Solution:  For most CEOs/owners, selling their company is one of the most … [Read more...]

The deal is done and you have completed the closing.  Now what do you do?  You help the new owner because chances are that you have some vested interest in the new entity, and it is in your best interest that the new owner is successful. For example: – there may be an escrow account due you. – the buyer may have given you a note. – you may be the landlord, and the buyer the tenant. – your name remains on the company letterhead, and your personal reputation continues to be associated with the business. – your former employees depend on you to have made the right decision in selling to the particular buyer, thus preserving their jobs. … [Read more...]