Business Exchange

Country Business, Inc.

Acquisition, Brokerage & Financial Services

POSITION YOUR COMPANY FOR SALE

Maximize the value of your company
By Philip H Steckler - Certified Business Intermediary

A s a business owner, you’ve devoted time and effort to achieve success in your
business. You’ve met and overcome many challenges. Yet, despite the experiences,
successes and challenges, most business owners are not prepared for what is often a once
in a lifetime experience—selling their business.

It is best to begin thinking about a succession plan well before a transition. Properly
planning and positioning the business for an increase in the value of the business,
enabling the business owner to maximize the ultimate sales price. The steps outlined
below will assist an owner in the process.

BUSINESS VALUATION
A business valuation identifies the realistic market value of a
business. This information enables an owner to determine if
financial and personal goals can be achieved through the sale of
the business.
Historical operating statements and realistic future projections
are important (but not the only) factors in determining value.
Often the valuation process will identify specific areas for
improvement; which, if implemented, can increase the value of
the business.
Properly priced businesses generally enable the owner to
achieve a relatively quick (6 to 18 months) sale at or near the
full price and terms suggested.
In pricing a business, it is often useful to view the opportunity
as a prospective purchaser. As such, the price and terms must
usually meet the following criteria.
Criteria for Testing Price & Terms
Debt. The income from the business must be sufficient to cover
debt—the principal and interest of outstanding obligations.
Owners Salary. The purchaser/owner of the business should
be adequately compensated for his role in the business.
Reserve for Replacement. Almost all businesses have
fixed assets, and over time, these assets wear out. An adequate reserve
should be made to replace these assets.
Return on Invested Capital. A reasonable return on
investment should be available to reward the purchaser for the risk.

Use the above criteria to test the price (and terms) established. If the criteria are satisfied, it is likely the market will support the
offering. There are of course exceptions-particularly if a “Synergistic” buyer can be found.

I. PREPARE A BUSINESS PLAN II. MAXIMIZE PROFIT

Successful businesses often utilize a business plan to
establish goals, measure progress and guide the
operation of the business. A plan identifies the current
market position of a company, sets forth goals and an
action plan for meeting these goals. The document will
assist a prospective purchaser to understand the
business, and indicate that the company has a firm sense
of direction. It also provides a measure of interim
performance against projections. Present your business
as a clean, lean, and productive enterprise.
A variety of criteria often enter into a decision to purchase a business. Yet the
ultimate driving decision—whether an individual, equity or corporate purchaser—is
the ability to generate income. A more profitable business will almost always
generate a higher price, and sell more quickly, than a similar, less profitable business.
Profitability is also an essential ingredient in attaining desirable financing.
Maximizing profit on the surface may seem to counter another common goal—
minimizing taxes. Not necessarily. There are many personal benefits, often
expensed by the business, that reduce taxable income; yet these often accrue to the
owner as a benefit. Automobile expenses, travel and entertainment, personal
retirement plans, payments to children are typical examples. In positioning a business
for sale, it is important to identify these “owner perks” in order to restate the income
statements to provide a realistic picture of the real profitability of the business.
 Business Exchange CBI
Acquisition, Brokerage & Financial Services

III. REDUCE UNNECESSARY ASSETS V. ENVIRONMENTAL AND REGULATORY

Businesses tend to accumulate assets over the years some of
which may be unnecessary. Inventory should be clean and
current. Older, slower moving inventory should be sold.
Machinery, equipment, display fixtures and other assets no
longer utilized should be identified, and if possible, sold
prior to the sale of the business.
IV. PERSONNEL—ALLOCATE
RESPONSIBILITY
Personnel in key positions, enhance the desirability of a
business. Acquiring a business with key operating and
management personnel in place makes the business more
appealing to a broader buyer base. This is particularly
true if the business is to be sold to another corporation or
a professional equity group.
CONSIDERATIONS
Where appropriate, site tests and inspections should be made to insure that the
business conforms to regulatory and environmental codes. Waiting until a
purchaser appears can cause untimely delays that may result in a lost sale.
Taking care of these issues in advance will maintain a desirable ingredient in
any transaction—momentum.
VI. THE SELLING PROCESS
Selling a business is time consuming and complex. In order realize a sale and
maximize value, the process should be carefully planned and implemented. Once
pertinent information is gathered, and an offering prospectus is prepared, marketing
the business generally require 6 to 18 months to consummate a sale.
Occasionally owners attempt to sell a business on their own. Yet the required time
and effort involved in selling often detracts from the day-to-day operation of the
business, reducing value, and often ending in frustration. A qualified business
intermediary or merger and acquisition specialist significantly broadens the base of
qualified purchasers and assists in every aspect of the selling process. The role of
the professional intermediary includes properly pricing and establishing terms of the
business, preparing a comprehensive marketing prospectus, attracting and
maintaining the desired degree of confidentiality, successfully negotiating the
transaction, assisting in obtaining financing, working closely with the seller’s other
professional advisors, and guiding the transaction through closing.
In addition to the business intermediary, a competent accountant and attorney,
specializing in business transactions, are important professionals to include on your
team. The accountant will assist in structuring the transaction to minimize taxes,
and the attorney will protect the owner’s legal interests.

OTHER CONSIDERATIONS
Employees. The timing on informing employees on the planned sale of a business can be a sensitive issue. While this concern may be
justified, it is often advisable to inform key people that the decision to sell has been made. They will appreciate your taking them into your
confidence, and can assist in the selling process. Valuable employees can be assured that new owners need to retain valued employees.
Terms. The terms of a transaction are often an important factor. The equity investment from a purchaser should be significant. 20% to 35%
of the sales price is a reasonable range for most mid- sized businesses. While cash flow is critical to lending institutions, the underlying assets
being transferred are also a factor. In order to receive full value for the business, it may be necessary for the seller to finance a portion of the
transaction. Financing can be in the form of a fixed note, a consulting or employment agreement, or an “earn-out”—payment based on the
performance of the business. The needs of the owner, profitability and desirability of the business, tax implications, the current banking
environment, and buyer demand all influence terms that may be called for.
Choosing an Advisor and costs. Your business may well be your most valuable financial asset. Choosing the right firm—a firm with the
ability and track record to represent you well, is essential. Determine if the firm has the experience and expertise to properly handle the
assignment. Does the intermediary have a record of selling most businesses accepted as assignments? Are sales consummated at the price and
terms recommended? Obtain a list of buyers, sellers and professionals to attest to the effectiveness of the firm. . Leading intermediary firms
are members of the industry’s professional organization--The International Business Brokers Association—and members of the firm should
have earned, or are working toward the designation: Certified Business Intermediary.
Intermediaries are generally compensated based on the sales price, commonly ranging from 6% to 12% (as the sales price increases, the
percent paid will often decrease). While most compensation is paid on performance—completion of the transaction—a retainer is often
charged at the outset of the assignment.
Asset or stock sale. Most business sales are “asset sales”. Yet some profitable mid-sized businesses are transferred by the sale of stock.
Consultation with your professional advisors as to marketability, legal and tax implications are suggested.
Taxes. “It’s not what you sell if for, it’s what you get to keep”. The sale of a successful business has tax implications. Allocation of
purchase price, form of sale and many other factors need to be considered. Working closely with your professional advisors in preparation of
a sale can significantly alleviate the tax burden.

Selling a successful business is the culmination of years of hard work. The sale of your business should be
a continuation of this success. Planning, and implementing the above steps will enhance this final success.
Offices located in principal cities in New England, New York, and Atlantic Canada including:
● Brattleboro, VT ● Burlington, VT ● Manchester Center, VT ● Portland, ME ● Manchester, NH
● Springfield, MA ● Albany, NY ● Lake Placid, NY ● St. John, NB ● St. Andrews, NB ● Halifax, NS
For additional information please visit our website: www.countrybusiness.net