First of two articles.
If someone came knocking on your door today with an attractive offer for your business, would you be prepared for a sale?
Improvements in the economy are taking hold, and many potential buyers — other companies as well as private equity firms — are now actively seeking opportunities to deploy idle cash. At the same time, many owners of closely held companies are seeing their business return to prerecession valuations. Owners who were unwilling to consider a sale during the past six years as a result of depressed values are now unwilling to risk another protracted downturn—and are thus more receptive to an offer.
But when that offer comes along, will you be prepared for it, both financially and emotionally?
In this two-part series, we’ll address how to put yourself in the best position possible before a buyer comes knocking, looking at it from both the business side (the science) and the personal, emotional side (the art).
The first thing to understand about the science of business owner preparedness is that it’s not enough for you simply to want to sell your company. You also need to proactively position your company for a sale.
[caption id="attachment_92509" align="alignleft" width="192"] Jay Silverstein[/caption]
“For the unprepared, when an offer shows up in the form of a letter of intent, many options and opportunities to plan are no longer available,” said Jay Silverstein, a partner with the accounting firm Moss Adams LLP who specializes in working with business owners contemplating a transaction. “For example, there are a number of strategies that can be employed in advance of a transaction to reduce the business owner’s income and estate tax burden. These strategies become less advantageous and more risky the closer you get to the transaction.”
Too often, Silverstein added, “business owners sign a letter of intent for the sale of their business prior to doing the analysis to determine how much cash they’ll receive from a transaction after taxes, debt, and expenses. At that point they’ve lost much of their leverage. Performing this analysis ahead of time puts them in a much better position to structure the deal in a tax-advantaged way and increase their net cash.”
Preparation also often translates to a higher selling price, a shorter due diligence period, and an opportunity to structure the deal in a way that works for you. But being proactive means dedicating time and resources in advance of a deal. In fact, time is your most valuable friend. It allows you to find and fix weaknesses in the business before a potential buyer discovers them. It also helps you anticipate and understand what you personally need financially out of the deal to maintain or enhance the lifestyle you desire. (More about this in part two of our series.)
Sell-side due diligence is another key step.
[caption id="attachment_92510" align="alignleft" width="192"] Luc Arsenault[/caption]
“To maximize enterprise value, sellers (both privately held and private equity–owned) are increasingly hiring third-party specialists to perform sell-side due diligence,” said Luc Arsenault, a partner at Moss Adams who leads the firm’s transaction services practice. “It provides a number of advantages, from tangible benefits such as the increased precision of recurring earnings of the enterprise to intangible benefits such as acceleration of the deal process.”