TR Footnotes — FN.0910
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Smart Moves
William J. Lynott

Business Bulls-Eye!

If you’re planning to sell, stay on target with these tips

Are you thinking of selling your towing business? Has the prospect of selling during the Great Recession given you second thoughts? Or has the state of the economy changed enough so that you could now sell your business successfully? Here is some advice that can help you make that crucial decision:

Before the economic meltdown of 2008, owners selling their businesses could virtually call the shots on the deal, but that year ushered in the recession, which included a precipitous drop in sales of businesses and in mergers and acquisitions. But now the economic news seems to be improving. According to Bryan Adams of FactSet Research Systems Inc. in New York City, “Clearly the second half of 2008 stands out as the bottom, where the market essentially collapsed. Now, though the market is still finding its feet, it does appear that we are moving in a positive direction.”

While Adams and some other business brokers suggest that the worst may now be behind us, not everyone agrees. Broker Herman Petrecca of Business Connection Plus in Warminster, PA, specializes in small business sales. He said that he is continuing to make sales but many of them are “buyand- flip” sales. “There are buyers out there,” he said, “but many are looking to buy at distressed prices so that they can turn around and re-sell the business.”

Bernie Siegel of Siegel Financial Group in Conshohocken, PA, looks at things differently. He believes that “the small business market has bottomed out and the worst is behind us. The poor economy of the past couple of years has resulted in many potential business sellers holding off. The result is a pentup supply of potential buyers.”

Adams shares that view. “I feel that a business owner putting his business up for sale now will find that there are buyers out there. There are deals to be done, and willing buyers, so if you have a profitable, well-run, and positive cash-flow business, you should be able to find a suitable partner and get some good value for yourself.”

“I believe a seller should choose to sell his company when it makes personal sense to him or her,” said Siegel. “One does not usually sell a company driven solely by financial goals, but rather when it’s time to retire, move on, move up, or whatever.”

Whether or not this is the best time to put your business on the block, any time is a good time to be getting it ready to sell. If you have any notion of selling your towing company in the near future, the following tips will help you make sure you bring a Cinderella to market and not an ugly duckling:

Don’t act on impulse. “Last-minute, emotional decisions to sell a business seldom end up with a satisfactory sale,” said business intermediary Dick Marsh of R.H. Marsh Associates in Jenkintown, PA. “I often receive phone calls from business owners who have Had a frustrating day. ‘I’ve had it,’ they say. ‘I want to sell my business.’ That’s a recipe for failure.”

Our experts agree that preparing a business for sale takes more than a few weeks of cosmetic touch-up. Potential buyers will examine your business with a calculating eye. Unless they see the likelihood of an excellent return on their investment, they will move on.

That’s the rub. Human nature being what it is, many business owners start to think about selling out when business is slow and profits are sluggish. “That’s exactly the wrong time to sell a business,” said Marsh. “Nothing is more attractive to a potential buyer than a couple of years of solid growth in gross volume and net income. Nothing will scare off a buyer more quickly than a business that seems stuck in the doldrums.”

Preparing your business for sale means bringing it into a state of good health. When it looks so good to you that you begin to wonder why you want to sell it, it’s probably ready for the market.

Be realistic about the value of your business. It’s understandable: You gave birth to the business, nurtured it, and lived with it during good times and bad. It’s part of you. There is a genuine emotional attachment between you and your business.

However, your potential buyer doesn’t care a whit about your emotional relationship with your business. A buyer has one interest above all others: Can I make this business a success and what return can I expect from my investment?

That’s why you need to divorce yourself from emotional considerations and look at your business from the viewpoint of a cold-hearted buyer. Any business broker can tell you stories about sellers who place unrealistic selling prices on their businesses because they are too emotionally involved to be objective.


“The single most important piece of advice I can offer to a business seller is to develop an understanding of what your business is really worth,” said Siegel. “Trying to sell a company for one million dollars that is worth, say, $200,000, not only is not going to happen, but it can result in real damage to the business. Over my 27-year career as a broker, I have witnessed how unrealistic expectations have had terrible results.”

Dick Marsh offers this advice: “Ask yourself: Would I pay my asking price for this business if I were buying it? If the answer is no, it’s time for you to reevaluate.”

Document the progress of your business. “The first thing a sophisticated buyer will want to see is three to five years of financial reports in a form that follows conventional accounting standards,” said Marsh.

A prospective buyer, or his accountant, won’t be satisfied with claims that your business is actually more profitable than financial records indicate. A seller who hopes to get a fair price for a business is going to have to demonstrate its true financial condition in black and white. You may or may not need full balance sheets and operating statements to run your business, but you most certainly will need them if you expect to sell it.

“When you’re ready to sell,” said Petrecca, “you should have copies of all documentation related to the business — leases, a list of capital equipment, accounts receivable and payable, tax Returns, etc. It’s also important to have a written description of the business, a current marketing plan, and projections for the future.”

It’s in this area that many small business owners come up short, said the experts. “Make sure that your last couple of years of financial reporting are meticulously accurate,” said Siegel, “and be prepared to clearly validate any financial claim.”

Paperwork may not be your favorite activity in business, but when it’s time to sell, any inability or unwillingness on your part to produce the required information will tarnish your offering in the marketplace.

Don’t slack off. “It’s not uncommon,” said Dick Marsh, “for a seller to neglect the business once it’s been put up for sale. That’s a big mistake. Any evidence that a business may be going downhill is a serious red flag to prospective buyers.”

Don’t make the mistake of thinking you can charm potential buyers with excuses or rosy projections of what your business could be under different circumstances. Instead, you can Expect them and their accountants to cast a jaundiced eye on your past and present performance as a gauge of actual market value.

Prepare a seller’s document. “Seller’s document” may be a phrase that you haven’t heard about, but when you decide to sell your business, it can be an extraordinarily valuable tool.

Briefly, you create a seller’s document to tell prospective buyers about your business and why they should buy it. A good one will contain, at the least, a brief history of the business, financial highlights over the past few years, observations about your local market and prospects for growth, and a frank look at the competition.

While large businesses often create elaborate brochures with glossy photos and lengthy chapters, most towing operators need not go to such lengths. A two-page summary neatly typed and grammatically correct is often enough. Most important is the content. If you engage a business broker to sell your business, that professional will be able to help you prepare your seller’s document.

How can you tell if your seller’s document will do the job? “A good seller’s document will answer 80 percent of the questions that a prospective buyer is likely to ask,” said Dick Marsh.

Decide what to tell your employees. For a variety of reasons, many sellers are reluctant to tell their employees that the business is up for sale. “In my view,” said Marsh, “that’s a mistake. They’re going to find out eventually. In fact, it’s almost impossible to keep employees from knowing that a business is for sale. When they eventually find out, resentment is certain.”

“The owner should definitely inform his employees about his plan to sell the business,” said Petrecca. “If they find out from anyone other than you, you will almost certainly lose their respect and loyalty. That, in turn, could influence prospective buyers.”

Our experts agree that the timing and the manner of informing employees are sensitive issues. “It’s important,” said Petrecca, “to respect your employees’ concerns about their futures. Anything you can do to demonstrate your concern for them will help everyone.”

Get professional advice. Getting assistance in preparing your seller’s document is not the only reason that you should engage professional help. It is very difficult for the typical business owner to place a realistic price on his business. Experience suggests that using a professional business broker to sell your business is likely to bring the most satisfactory results, including the best net return for you.

However, if your business is small, it may be difficult for you to find a broker, or you may be reluctant to pay a broker’s fee. If you intend to put your business on the market without the services of a broker, you need, at the very least, a good accountant and a good attorney. Both should be experienced in business sales.

The sale of a business, even a very small business, is a complex transaction rife with potential frustrations and legal pitfalls. Dick Marsh summarizes it this way: “If you’re like the great majority of business sellers, you’ll do the job only once in your lifetime. That means you need to get it done right the first time.”
















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