Selling Your Business Tuerk & Associates |
| The Decisions Reaching the critical decision to sell your company is one of the most important choices a business owner ever makes. Once the decision is reached, you need to elect whether you will go it alone or seek professional assistance. Generally the answer to the question "Should we go it alone?" is a resounding "NO" - unless you have a ready and able buyer who will meet your terms. Even then you should seek professional counsel to validate that the price and terms are fair and reasonable in today's market and that this is the most appropriate time to sell given the status of your company and market conditions. Many sellers tend to over estimate their company value, but under valuation is also common since company owners are not familiar with the merger/acquisition market. A realistic independent valuation by outside professionals will affirm your price or provide a valuable tool for negotiating a higher price. Selling a business requires a great deal of the owner's time. In many situations too much of key personnel time may be spent selling the business rather keeping it healthy - a sure recipe to lower value. Selling a business requires many steps including: analysis, evaluation, documentation, buyer search, buyer qualification, negotiations and contract review. This is a time consuming assignment - and you still need to run the business. You can (1) go it alone, (2) apply professional assistance for specific tasks, or (3) exclusively use outside professionals. Only you can make this decision of which resources to utilize in the sale of your company. To help you evaluate whether your company possesses and can afford to utilize your internal resources to produce a successful sale, we will discuss several of the important steps required within this process. Analysis, Evaluation & Documentation The steps in the initial phase are important and time consuming. Lack of analysis and documentation can seriously lower the company value and impact the salability of the company. Many times the professional help of outsiders will provide valuable impartial insights for improving and documenting the company value. Timing of the sale is most important. Depending on the company's activities, current or future, it may be desirable to delay the sale to allow the company to be presented in its best position. The climate of the current market could also influence the timing of the sale. Information relative to the company financial position must be analyzed and, in some cases, recast. Lawsuits (if any), contracts, employee agreements and the like must be reviewed to determine their impact on value. Some cleanup and re-negotiation may be in order to relieve uncertainties. All unrecorded liabilities should be identified and disclosed in your documentation. If discovered by the buyer later, these most certainly will give cause for suspicion in other areas. Many companies set their value too low or too high based on factors that may not be relevant to their business. Recasting the company's financial statements will best show the true profitability and asset values which will largely determine the price. Analyzing the markets served as well as prices of similar company sales will further impact the price that is attainable. Documentation of the company should be presented in understandable form. Present the key factors quickly and do not attempt any concealment. If there is a problem either solve it or present it as an opportunity for the buyer to correct. Buyer Research & Qualification Locating buyers can be one of the most time consuming aspects of this process. Some owners use all of their contacts such as attorneys, accountants, suppliers, and peer groups to locate potential buyers. However, if you want to keep the sale confidential it will be extremely difficult using these sources. Engaging outside professionals to handle your sale will protect confidentiality. Qualifying prospects is similar to qualifying a prospective executive you intend to add to your management staff. To properly qualify prospects you need to determine their objectives through personal meetings, check their finances, check business and personal references, and learn how earlier acquisitions they have made have worked out. If the buyers cannot articulate their objectives for the company or do not have the required capital, then chances for a successful closing are minimal. Over eighty percent of the prospects will lack the qualifications to complete the transaction. It is important to be realistic and eliminate the undesirable ones so that valuable resources are not wasted in assessing prospective buyers. Negotiations & Contract Review Once a potential buyer is located and qualified, you must arrive at a mutually agreeable deal structure and purchase contract to consummate the sale. Negotiations cover hundreds of deal points. The terms of payment need to be structured, employment contracts negotiated, royalties resolved, non-compete agreements made, representations and warranties agreed to, and any remaining uncertainties eliminated or resolved. At this point professionals such as lawyers, accountants and investment bankers are invaluable in resolving difficulties. Their early involvement will head off problems before they become insurmountable. It will be well worth your investment to use qualified outsiders in these highly specialized areas. Tuerk & Associates is a high quality merger/acquisition and valuation organization serving middle market companies. The firm has over thirty years of successful experience in selling companies in almost every manufacturing, wholesale, service and retail sector. Most recently they have added additional capabilities in the technology-based businesses including electronic components, instruments, software, information systems and defense electronics. Author - Conrad Tuerk, President |
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