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You found a willing buyer for your business and life is about to get easier, right? Not so fast – your work is just beginning! For the moment, let’s assume you have done all the right things in advance of the sale:
- Positioned the business to attract the right Buyer- Type
- Priced the business properly
- Considered the sale from a tax perspective
- Pre-qualified the business for financing
- Verified that the buyer will be able to renegotiate or assume your lease
- Handled all key personnel issues regarding the sale
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Don’t Get Comfortable Yet! |
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Even if you have covered all the items listed above, there are still several questions that need to be answered.
- Is the buyer qualified to purchase your business?
- Does he/she qualify for the pre-arranged financing?
- Does the buyer have liquidity to inject sufficient working capital into the business?
- Will you be required to hold a note for any portion of the price? If so, how will you be protected?
- Will suppliers be granting the buyer similar purchase terms or are they unaware of the change in ownership?
- Are there any contracts or formal agreements that need to be amended before sale?
- Have you properly disclosed all potential items that might adversely affect this buyer’s ability to succeed?
- Are you willing or able to stay on for awhile to smooth the transition amongst employees, vendors and customers?
These are but a few of the questions that need to be addressed before getting comfortable about the sale of the business.
Most owners of small to mid-size companies find the process of selling the business to be onerous and expensive. If it is done right, it is both. That’s because the sale of a business is never completed when the documents are signed. There is always the risk of lawsuits between the buyer and seller due to perceptions of undisclosed issues, misrepresentations, etc. In cases where the owner agrees to help finance the sale by holding a note, he/she may be required to take back ownership of the business if the buyer defaults on payments. These risks can never be eliminated. They can be minimized, but it requires professional assistance in advance.
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Key Employee Issues |
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One of the most difficult aspects of a business sale concerns the employees, especially key employees. When is the best time to disclose your intentions? At what point do you make introductions between the employees and the new buyer? How do you even begin showing the business to prospective buyers without making the employees suspicious?
Unfortunately, the answers to these questions are different for each business and will be based on the owner’s relationship with his/her employees.
Sometimes there is a key employee and the buyer is relying on that person to remain in place post-sale. If the situation is mishandled and that employee gives notice prior to the sale, the deal may be cancelled. Some sales include a seller note for a portion of the selling price that is tied to the key employee’s continuance with the company for some stated time period. If the key employee leaves at the half-way point, 50% of the note value is forgiven by the owner.
When a business has more than one management layer, focus on managers first. Dropping subtle hints regarding your intentions to retire soon will eliminate a lot of suspicion and gossip. If you and your trusted advisors have determined that the business isn’t well suited as a target for a strategic buyer, you may want to look at your managers to determine if any of them would make a good buyer for the business.
In today’s financing arena, there are special incentives for management buyouts. Lenders consider existing management a better risk than many outside buyers. They will, therefore, allow as little as 10% down from one or more managers. Too often, managers are immediately discounted as buyers because they have no financial means. Many can secure a home equity loan for the amount needed. Under some lender programs, a home equity loan for $100,000 can be used to purchase a $1,000,000 company.
Selling the family business is a lot like first impressions – you only get one chance to do it right and there are numerous complications to consider. Preparing a company for sale involves many complex aspects that most owners do not consider. One or two problems are sufficient to upset the sale, so be sure you use a professional advisor well in advance of selling your company. You have spent too many years and made too many compromises to not receive what you are due. After all, it can take 12 to 24 months to properly position a business for sale and to maximize your value.
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Coming In The Next Issue |
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Don't miss the next issue of Exit for Success.
Your 2007 Resolution – Stop Working IN Your Business;
Start Working ON Your Business
Use the link below to read previously published issues.
BizMACH is an association of highly skilled consultants, evaluation experts and merger and acquisition specialists. We take ordinary companies and create extraordinary value. Best of all, we only work with lower mid-market companies.
Competitive advantage is the key to revitalizing your company's growth and profitability. Call us if you'd like a free consultation and to learn how BizMACH can grow your company and increase its value.
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Business Evaluation and Salability Tool
Tom Long
Solid Oak Consulting, LLC
522 South Elmwood Ave
Oak Park, IL 60304
708-524-0886
telong@solidoakconsulting.com
Executive Associate
Accredited by the Institute for Independent Business
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