Tag: Exit Strategy

Small Business Seller’s Wish List

In the spirit of the season, we offer a wish list for a typical buyer and seller of a small business. Entrepreneurs who are selling their companies, as well as those looking to purchase, generally agree on what would make the process more seamless overall.

Today’s blog focuses on what the seller wants:

  • A qualified buyer – This not only means someone with the financial resources to meet a down payment and secure financing, it also describes someone with experience owning or managing a business — perhaps with some knowledge of the industry itself. A qualified buyer more than likely has established ties to the geographical area and if married or in a domestic relationship, has the support of his partner.

 

  • An appropriate offer – A seller appreciates an offer that is solid, reasonable and timely. Sellers expect contingencies to be a part of the offer, but also anticipate these to be realistic. One of the most common contingencies is a lease transfer with equitable terms for the buyer.

 

  • A practical due diligence phase – Sellers are pleased to answer questions and share pertinent data during the due diligence phase; however, buyers should take care not to pose queries or make statements that may be perceived as an insult to the seller. Common sense should dictate how the buyer should best introduce discussions on past decisions the seller made or how the business is run on a daily basis. Buyers should prepare their due diligence requests in writing and as soon as possible after the offer has been accepted.

 

  • A smooth closing – The closing should be a time of celebration for both parties, not a time for second-guessing, bickering or hesitation. Hiring a closing attorney experienced in the business transfer process helps immensely. By the time everyone is seated at the closing table, all questions should have been answered, all pre-closing paperwork completed and the buyer and seller should be confident this is a win-win situation for everyone involved.

 

  • An efficient transition – Most sellers, particularly those who created the business from the ground up, truly want to see the business continue to grow and prosper. Sellers want their buyers to be successful, and most will work hard to ensure the buyer is completely comfortable with all facets of the business during the training period that begins after the closing. This transition phase often involves introducing the new owner to suppliers and customers and showing the buyer everything related to running the business, from how to operate office equipment to the best way to manage employees’ schedules.

 

As a business broker, I have most enjoyed working with buyers and sellers who are forthright, reasonable and agreeable. Having realistic expectations on both sides and keeping a professional and positive attitude throughout the business transfer process goes a long way toward reaching a successful closing.

Developing an Exit Strategy Plan for Business Owners

It is important to for small business owners to develop an Exit Strategy early on. A three-year plan is optimal; a three-week plan is distressing!

The following is a list of important items to include in your strategy. Identify and gather all appropriate documents:

  • Tax returns for the last three years
  • P & L and Balance Sheets for the last three years, plus the most current on you have available.
  • Develop a year-end projection for the current year of sales and expenses. An explanation of any additional capital purchases needed, or recruitment of additional personnel required.
  • A list of your top 10 accounts and the annual sales generated by each for the most recent year (if applicable).
  • A list of assets that are owned by the company. The year purchased, make and model, and fair market value. Items like office furniture can be grouped together and listed as a group.
  • A list of your key employees, their compensation and benefits, and how long they have worked for you.
  • A description of your office space owned or leased, the terms if leased and options that are currently in place.
  • A brief description of how you market your business and what areas generate the majority of your sales. Give percentages and breakdown of sales by specific sectors. Please also provide copies of any printed marketing materials you may have.
  • Are there any pending law suit, employee or supplier issues a buyer should be aware of?

 

Upon your decision to exit, a business broker or intermediary, can help you value, market and sell your business, developing a current value for your business using the market approach, the income approach or the asset approach.

Ten Steps to the Successful Sale of a Business

1. Make sure you have a valid reason for selling your business. The first thing a prospective buyer will want to know is the reason you are selling. The more valid the reason you offer, the more serious the buyer will be.

2. Don't wait until you have to sell, for either economic or emotional reasons. You don't want anxiety to force you into accepting a deal that's not good for you or for the buyer.

3. Once you have made the decision to sell–and before talking to your business broker–you should gather the information needed to market and subsequently sell your business. Here's the list of key items:

  • Three years profit and loss statements
  • Federal income tax returns for the business
  • List of fixtures and equipment
  • The lease and any lease-related documents
  • Copy of the franchise agreements (if applicable)
  • List of loans against the business with amounts and payment schedule
  • Copies of any equipment leases
  • An approximate amount of the inventory on hand
  • Names of outside advisors

 

4. Remember that you are part of the marketing team. Your business broker can't do it all–and might even ask you to come to an office meeting to tell the rest of the staff about your business. Follow your broker's advice about dealing with prospective buyers–there's a right and a wrong time to meet them.

5. Confidentiality works both ways. The broker will constantly stress confidentiality to the customers to whom he or she shows your business. However, as the seller, you must maintain confidentiality about a pending sale in your day-to-day business activities.

6. You, as the seller, should put yourself in a prospective buyer's position. The next time you go to your place of business, pretend you are a buyer looking at it for the first time. How impressed are you?

7. Just because you are selling, now is not the time to let the business slip. It's important that prospective buyers see your business at its best; bustling, and showing no signs of neglect.

8. Engage an outside professional who understands the sales process. If you are going to use a lawyer, use one who is seasoned in the business sale process.

9. Be flexible! You need to keep the ball rolling once an offer has been presented. Study it closely. Just because you didn't get your asking price, the offer may have other points that will offset it, such as higher payments or interest, a consulting agreement, more cash than you anticipated or a buyer that you are comfortable with.

10. Remember that most successful transactions are successful because they create a win-win situation for everyone involved.