I write a lot about the issues that can arise when selling a business. You may get tired of reading about it … but the once in a lifetime sale of a privately held business is probably the most important transaction in a business owner’s life.
So here is another post on the subject.
Business owners often underestimate the effort needed for a good outcome in a transaction. They also over estimate the value and salability of their companies.
Consider these items:
Overestimating the value of the company. The listing price should be based on the fair market value of the business as it is now. Acquirers will not give any consideration to how much work you put into the company. Or how much your strategy plans will increase value once implemented. They will want to know what it is worth NOW.
Not using dependent valuators to help set the sale price. You may know your business in detail, but that does not mean you know the value of the business on a fair market value basis. Get an outside valuator to help. They will provide a business value on reality, without emotion, based on current market conditions.
Account for the nature of your business. Most business valuations are based on a mix of items. For example, if your company includes substantial real estate, intellectual property, machinery & equipment, etc., get a separate appraisal for those items. Before the company is put up for sale. If your company is a service business, the sale price may depend on the ability of the new owner to retain key employees.
The seller should be willing to help finance the sale. The seller should be willing and able to engage in a so-called earn-out. Or willing to take back a note. If the seller is not willing to do this, then the sales price is limited to the buyer’s capital resources only. Of course, the seller needs to realistic as to the sales price or the buyer may default on the note.
Use a professional intermediary. Sellers/owners are usually too busy running the business to do a good job of selling the business. They may be emotionally invested in the business. A good intermediary will know how to market your business and be able to negotiate the best sales price and transaction structure given the specifics of the seller’s situation.
The seller must be willing to help the buyer after the sale, to ensure a smooth transition. This will increase the buyer’s comfort level when acquiring a company. It will also help with the comfort level of employees, vendors and customers when the business sale is announced. A less than smooth transition could result in lots of problems including poor financial performance and litigation. Avoid this.
