Strategies for selling a business.
* Identify a realistic value for your company. The first step in selling a business is determining what it is actually worth. There are lots of formulas for valuing a business. Buyers may base a purchase offer at least in part on the value of the assets in your business, the cash flow, gross revenue, annual growth and other factors. No matter how many numbers are cranked into how many equations, sale prices typically depend on the company's profits. The sale price of a company is often a multiple of the business' profit. That multiple may vary from industry to industry and business to business.
* Keep up-to-date financial reports and tax filings. Due to recent accounting and fraudulent financial reporting scandals, many investors have become more cautious as it relates to your company's financial reports and tax filings. Although there may be nothing wrong with your company's financial reports, you may scare off investors with tax reporting extensions or excessively delayed financial statements. If you have not consistently maintained current financials in the past, you may need to update your accounting software or consider switching accounting firms.
* Maintain a high standard of accuracy. Serious investors will demand a high level of comfort, especially about the accuracy of cash flow statements, accounts receivable lists, and the assessed value of fixtures, equipment and inventory. This is a time when it may really pay off to invest in audited financial statements. I also recommend that all sellers have their tax advisers recast profit-and-loss statements to reflect adjustments for what the business owner takes out of the business in terms of salary, health care and other benefits, and automobile expenses and other perks. This can be especially useful when dealing with a buyer who would operate the business himself.
* Identify the best time to sell your business. Although it always makes sense to try to sell during a peak market, it is even more important to pay attention to what is going on within your company and industry. The bottom line: It's not in your best interest a sell during a significant downturn (unless you absolutely don't have any other options and are prepared to accept a rock-bottom price).
* Simplify your information and data. Anything unusual can be negative when it comes time to sell your company. You may want a third party to review your information to reduce and eliminate complications before you try to sell.
* Establish clear agreements. If your company operates in a highly competitive market, there's no doubt that your potential buyer will insist on a non-compete agreement (and perhaps even a clause in the sales contract that states that you will not try to hire key staffers for any new business operation at all). If you are not prepared to make the needed concessions, your company probably will not sell.
* Use a broker. A good business broker can help you determine a realistic price for your business. He or she also can identify and qualify appropriate buyers, put together a sales prospectus, negotiate terms of a sale, and maintain confidentiality so that only prospective purchasers know your business is on the block. You'll probably also want to work with your tax professional, attorney and other experts to make sure that all aspects of a sale are handled properly.
* Keep it confidential. Letting other people know that your business is for sale can be a big mistake. I have talked with small-business owners who have told me that when their suppliers heard that the business was for sale, lines of credit were pulled and all orders were filled only on a c.o.d. basis. There also is a risk in letting key employees know that your business is for sale. The key employees may start telling other people, including other employees, and before you know it your employees are sending out resumes and looking to leave the company. Since good, experienced employees are part of the assets that are transferred in a business, this can have a negative effect on the current business as well as the value of the business.
Walter Crockett is a senior associate with Cantrell-Waind & Associates Inc. in Fayetteville. Call him at (479) 521-4446.
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|Date:||Sep 12, 2005|
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