Thinking About Selling?
Here are some tasks business owners should consider completing before going to market to help their
businesses sell.
- Remove any items not included in the sale. That family heirloom portrait behind the counter of Grandfather William, founder of the business, should be removed.
- Remove or repair any non-functioning equipment.
- Prepare an operations manual to show a new owner all the functions of the business, how things are done, the major customers and suppliers, samples of advertising, and any other information that would help a new owner manage and operate the business.
- Take care of any outstanding bills and resolve any legal, tax, or governmental issues.
- Bring your financial statements up to date, and have your accounting professional prepare them for a buyer’s inspection.
- Clean up the business inside and out. Fill the shelves, clean up the inventory, and paint the interior if necessary.
When Is the Best Time to Sell Your Business?
Many experts say that the best time to sell is when the business is better than it’s ever been. This may be good advice, but few follow it. Why sell when business is good? You just suffered through a few not-so-great years and now the experts are telling you to sell? Right or wrong – good or bad – the decision to sell is generally event-driven. For example: declining health, a partnership break-up, personal issues, too much competition, family member elects not to purchase the business, etc. Retirement sounds like a good reason, but it has no time pressure, unless a seller has made the decision to retire at a certain age. Even then, when the seller realizes that he or she will have nothing to do after a sale…the idea loses its appeal.
However, one thing that a seller can do, without creating any pressure about selling or not selling, is to take a bit of time every year and prepare – just in case. This means tying up loose ends. Make sure financial records are current and complete, leases reviewed and renewed if necessary, any litigation resolved if possible, licenses and permits updated, agreements and contracts renewed and updated if necessary. You could call this eliminating the surprises, and you could also call it good business.
By doing this, if a potential sale comes out of nowhere – you’ll be ready.
Confidentiality Agreement – What Is It ?
Confidentiality Agreement – A pact that forbids buyers, sellers, and their agents in a given business deal from disclosing information about the transaction to others.
It is common practice for the seller, or his or her intermediary, to require a prospective buyer to sign a confidentiality agreement, sometimes referred to as a non-disclosure agreement. This is almost always done prior to the seller providing any important or proprietary information to a prospective buyer. The purpose is to protect the seller and his or her business from the buyer disclosing or using any of the information provided by the seller and restricted by the confidentiality agreement.
These agreements, most likely, were originally used so that a prospective buyer wouldn’t tell the world that the business was for sale. Their purpose now covers a multitude of items to protect the seller. A seller’s primary concerns are to insure that a potential buyer doesn’t capitalize on trade secrets, proprietary data or any other information that could essentially harm the selling company. A concern of the prospective buyer may be that similar information or data is already known or is being developed by his or her company. This can mean that both parties have to enter into some discussion of what the confidentiality agreement will cover, unless it is general in nature and non-threatening to the prospective buyer.
A general confidentiality agreement will normally cover the following items:
- A general confidentiality agreement will normally cover the following items:
- The purpose of the agreement – it is assumed that in this case it is to provide information to a prospective acquirer.
- What is confidential and what is not. Obviously, any information that is common knowledge or is in the public realm is not confidential. What information is going to be disclosed? And what information is going to be excluded under the disclosure requirements?
- How will confidential information be handled? For example, will it be marked “confidential,” etc?
- What will be the term of the agreement? Obviously, the seller would like it to be “for life” while the buyer will want a set number of years – for example, two or three years.
- The return of the information will be specified. For example, if the sale were terminated, then all documentation would be returned.
- Remedy for breach or determine what will be the seller’s remedies if the prospective acquirer discloses, or threatens to disclose any information covered by the confidentiality agreement.
- Obviously, the agreement would contain the legal jargon necessary to make it legally enforceable.
One important item that should be included in the confidentiality agreement is a proviso that the acquirer will not hire any key people from the selling firm. This prohibition works both ways: the prospective acquirer agrees not to solicit key people from the seller and will not hire any even if the key people do the approaching. This provision can have a termination date; for example, two years post-closing.
The sale of a company involves the disclosure of important and confidential company information. The selling company is entitled to protection from a potential acquirer using such information to its own advantage.
The confidentiality agreement may need to be more specific and detailed prior to commencing due diligence than a generic one that is used initially to provide general information to a prospective buyer.
Tips on Maintaining Confidentiality
- Use a code word or name for the proposed merger or acquisition.
- Don’t refer to any principal’s names in outside discussions.
- Conversations concerning the merger or acquisition should be held in private.
- Paperwork should be facedown unless being used.
- All documents should be kept under lock and key.
- Important data maintained on the computer should be protected by a password.
- Faxing documents should be done guardedly.
Are You Ready To Sell?
Getting your business and yourself, as the business owner “ready to sell”, takes quite a bit of work and preparation. You need to know and work with someone whose sole profession is selling businesses. You know your business better than anyone, but do you know how to get it ready and in its best shape to sell? Most probably not and the worst mistake a business owner can make is try to get both themselves and their business ready to sell and then try to sell it themselves.
Experience has shown us that more often than not, the Seller will spend more time and money trying to sell and take less than the business is actually worth because they skipped the professional assistance they needed to insure the best price. In short, leaving money on the table!
It is an unwise decision to put your business up for sale without knowing that you are fully prepared.
Preparation may range from simply sprucing up your business to preparing all financials in their true earnings condition, knowing what your industry is doing, understanding the tax implications of a sale, how you can gather more dollars for your business beyond the closing, knowing who most probably will be your buyer, the best manner in which to market your business and last, but not least, you certainly want to make sure that you know exactly what your business is worth.
10 Questions A Seller Should Ask A Broker
- Are you a Certified and Registered Broker/Intermediary?
- Are you affiliated with any business brokerage associations or trade groups?
- Will you provide any references? (Sellers, Attorneys, etc.)
- How will you determine how much I should ask for my business?
- Will you display my business on any Internet sites? If so, how many?
- How, other than the Internet, will you market my business?
- How can you help me to qualify a potential Buyer while protecting my Confidentiality?
- Under what circumstances will you show my business?
- How often will you contact me about what is going on?
- Can you please tell me about you and your firm?
FOR YOUR CONSIDERATION
- BUYERS WANT CASH FLOW
Recasting financial statements will help you provide a potential buyer with a better view of cash flow. Cash flow is not the same as profit. All potential buyers will want to see the income tax returns, profit and loss statement, owner compensations, etc.
- LOOKS CAN MAKE A DIFFERENCE
Just as you will need to do all that you can do to show a well organized, profitable business, you also will need to make sure that your facility is as aesthetically attractive as possible. Anything that you do to increase sales, increases profits and adds to that important cash flow that buyers seek.
- ADD VALUE TO YOUR BUSINESS
Don’t overlook the impact of a loyal customer lists, proprietary products, well-maintained equipment, special computer software programs, unique services or products and good employees will make when considering the value of your business.
- ELIMINATE SURPRISE
If your business has any flaws, be open about them. Do not allow legal, environmental or any other undisclosed problem to kell the deal. You need to resolve any problem before you market your business for sale.
- ALWAYS SEEK PROFESSIONAL ADVICE
The R. A. Kent Company, LL. Professionals are experienced, credentialed, and knowledgeable in helping buyers and sellers achieve their goals. Call us today.