Do Business Well

There are many situations that may cause you to seriously consider selling out. Among these are the obvious such as age, ill health, a decision to move your family to a new area, burnout, family pressure, or just the desire to move on to something new.

When selling becomes a serious option, you need at least nine months to find a buyer and consummate the sale. For even better results, plan to take two years. Here are the steps you should follow to obtain the highest price for your enterprise.

1. Change the way you do your bookkeeping one to two years before the sale. There are many different ways to prepare your income and financial statements that are legal and ethical. When selling the business is not a consideration, your priorities are probably determined by taxes or banks. You’re either trying to limit your profits to reduce tax exposure or maximize profits to prove creditworthiness.
2. While this statement in no way condones any such practice, many businesses are also stretching the bounds of legality to the limit, or are outright “cooking the books.” When preparing your business forsale, you’ll want to use straightforward accounting approaches that show your company in its best light. Any good accountant can help you do this. There are some sales agents and accountants who specialize in “recasting” your statements to facilitate a sale. In the same way that you’d prepare a house for sale, you’ll want your premises to sparkle in every possible way. Someone who is willing to part with top dollar will want a physical plant that he can be proud of. Do a thorough housecleaning. Paint the exterior. Make certain the bathrooms are clean and neat. Inventories and records should be neatly stored and arranged.
3. If the location is important to the sale, and the lease is anywhere close to the end, renegotiate with your landlord. Pay special attention to the transferability of the lease. It’s common for a buyer to pay more for a good lease than for any other asset^, of a business.
4.  In a similar vein, renegotiate any other contracts that are critical to the^. future of the enterprise. Do you have licenses, franchise agreements, exclusive territories, or special pricing arrangements? Make certain that each of these is transferable, and you’ll look as solid as the Rock of Gibraltar to the prospective buyer.
5. Don’t tell your employees of your plan. In fact, you’ll want to use all types of subterfuge to keep your plan from them. It should go without saying that your workers will get very nervous if they know you intend to sell. They may worry that they’ll be eased out after the sale, or they may be anxious about working for someone new. This could result in wholesale defections. Since most potential purchasers are going to want to retain most of your staff, it’s critical that the staff does not learn of your plans until the timing is right.
6. Prepare a business plan. The outline was presented back in section 2. There are numerous books that can provide other formats for such a business plan. You may wish to produce one that is more elaborate than what has been offered here. On the other hand, for your size business, the prospect may prefer a simple outline.
7. Marketing your business is the most complicated step. When you sell a home, it’s usually advantageous to use a broker. I’ve been told that this is because the realtor is not personally caught up in the sale. He can appear unbiased and makes a better presentation because of it. This logic applies to using business brokers.

Unfortunately, it’s not as easy to secure the services of a good, reputable business broker as it is a real estate agent. There are many “brokers” who make most of their money preparing businesses for sale. While they do make a fee when a business closes escrow, if they never consummate a sale, they still make a profit. So there’s large incentive to get you to sign up, regardless of whether they think they can actually do something for you.

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These “brokers” will help you through all the steps above. They’ll prepare a great-looking set of documents, which could easily cost five thousand dollars, ten thousand dollars, or more before the first ad is run. But, after charging you for all that fancy paperwork, there’s no guarantee they’ll be able to sell your business.

It’s very likely that the thousands of dollars these companies will charge will result in a valuable set of selling aids, but not necessarily at a bargain price. Indeed, should you go this route, be certain to eliminate the steps above that would be redundant, such as the recasting of your financial statements. Ultimately, these types of brokers aren’t very likely to sell your business.

There are other types of sales agents available. Their approach is more like that of a real estate broker, in that their primary effort goes into the search for potential purchasers. Both types of agents usually claim to have a ready list of potential buyers for companies such as yours. While it’s true that many individuals who wish to purchase a business call these very same agents, there’s only a slim chance that there will be an immediate match.

Whichever approach you use, attempt to find a business broker by networking with business acquaintances. Then check the broker’s references thoroughly. Make certain that if you pay any advance fees or sign an’ exclusive contract, that you are very clear on what you’re contracting for.

8. Whether or not you use an agent, the next step in the process is to draw up a list of places to go looking for buyers. After creating a general list, you’d then try to flesh it out with real names.

The most likely place to find a candidate is right under your nose. One or more of your employees might be very excited about the prospect of taking over your firm. If they have the necessary cash or can borrow it, such a deal could be very uncomplicated. (You’ll want to exercise caution here, though, since a discussion of this subject with employees may create the morale problem raised earlier.)

If they’re not in position to come up with cash, you may want to look at a structured buy-out that might take five years or even longer. Here is another one of those areas where you’ll want the help of an attorney to draft an agreement that protects your asset. Golden nugget: Make certain that you’re prepared to recover control in case the new team seems to be placing the operation in danger.

Many employee buy-out agreements give the owner a totally inactive role from day one. The owner is happy to receive his monthly check, and hopes that all will go well. However, surveys indicate that the purchased business has the same failure rate as a start-up. Thus, a totally inactive role may put you in danger of seeing your payments stop far short of a full payoff. Your insurance against this is to maintain a position such as chairman of the board, make frequent visits to the office, and carefully review the monthly financial statements.

On the one hand, you’ll want to let go so that the new management team can spread its wings. On the other hand, you’d be foolish not to stay close enough to the nest to rescue your fledglings, should they find themselves in grave danger.

Another alternative to the employee buy-out idea is an ESOP (Employee Stock Ownership Plan). In this arrangement, all of your employees buy you out, and they all end up owning stock in the new enterprise. You can either sell all of your interest or just part.

To raise the funds, the employees head down to a bank that is interested in funding ESOP’s. The bank lends your staff the money based on the appraised value of the company and its ability to repay. To make this idea even more appealing, the government has established certain tax advantages to the seller and the bank.

There is great flexibility in an ESOP. You can continue to run the business or not. You can sell as much or as little of your ownership as you like. (However, the tax advantage to you doesn’t click in unless you sell at least 30 percent.)

To be sure, there are also plenty of restrictions, red tape, and expense involved in the establishment of an ESOP. After all, it is a government program.

Possibly related posts: (automatically generated)
Serious Selling Your Business part 1

• Technology/ Information Assessment
• Serious Selling Your Business part 3
• Why Businesses Succeed
• Pursuing New Territories
• Why Businesses Fail part 3
• A Logical Planning Agenda: The Pizza Hut Experience
• Financial Awareness, Small Business Budgeting
• The Fact of Franchising
• Financial Issues: How Are You Doing?
• Who will Handle Commercial Marketing Integration?

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