Spring 2006 issue of Horizons

THE LIFE CYCLE OF YOUR BUSINESS

Selling Your Business

SWOT Analysis. Before selling, a review of the company's strengths, weaknesses, opportunities and threats (SWOT) should be performed by top management. A SWOT analysis could disclose issues that future buyers will inevitably explore. Your ability to discuss these issues intelligently will be greatly enhanced if you've been monitoring them and positioning yourself to face issues for a year or two ahead of any discussions with buyers. Take steps to reduce owner dependency. Strengthen your second tier management. Get non-compete agreements in place for key employees. Ensure that customers deal with more than one key person within the organization. Not only do buyers purchase the hard assets of your company, but they also are interested in the “soft assets” - your people, as well. Clean up financial and legal records. Utilize a quality CPA firm, and consider an audited financial statement or, at a min- imum, a review. Write off old assets with questionable value. Get all patent, license and trademark issues resolved. Clean up meeting minutes, corporation registrations and licenses to do business to ensure no last minute crises occur. Review physical facilities to enhance marketability. Consider an EPA Phase I review if one has never been com- pleted. Obtain valuations on key and costly real property. Review major capital equipment, and document maintenance programs and future equipment enhancements needed. The best strategic approach is to plan the process, gather information, and carefully define the roles of your key facilita- tors before you talk with any prospective buyers. At the very earliest stages of communication, make it clear that conver- sations should be kept highly confidential and that the seller will require a signed nondisclosure agreement from prospec- tive purchasers. A nondisclosure agreement from a prospec- tive buyer should be obtained before any conversations pro- ceed beyond the barest expression of interest. As discussions proceed, confidentiality issues become more complex and nearly impossible to manage single-handedly. Buyers are usually careful with confidentiality if their respon- sibility is clear. However, as discussions progress, it becomes increasingly difficult for the seller to maintain confidentiality due to a variety of nonstandard activities that are naturally required as the selling process continues.

Preparing for the Sale

John Price, CPA

When selling a privately held business, there are a number of critical issues that must be addressed to ensure maximization of value and protection of confidentiality during the process. Before a company is put up for sale, the seller should assess the market in his or her industry. For purposes of valuing a business, we have found that pricing multiples have returned to “reasonable” levels in many industries. Bank lending is avail- able to potential buyers, but lenders seem fairly cautious. Public buyers are active but not at the pace of the late 1990s. Beyond the market, consideration also must be given to your company's individual position. The best time to sell is when you're performing strongly. This is true despite the fact that it is more tempting to consider a sale when times are tough, because that's when the burdens of ownership feel oppressive. Once you have made the decision to sell your business, there are a number of value enhancement steps that can be taken in advance of the sale. Focus your business. Buyers will almost invariably pay more for a business that is very focused and strong in its specialty niche. Not only focus your business, but also consider mount- ing a strong public relations effort to enhance your business reputation.

Starting

Business Life cycle

The true market value of a business to the strategic buyer is not quantifiable by a valuation formula and can be very

Growing

Selling

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21 • spring 2006 issue