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University of Massachusetts Amherst

Family Business Center

Be Prepared to Sell Your Business-But Be Cautious, Too

by Shel Horowitz

Merger and acquisition specialist Colin Gabriel, author of the new book, How to Sell Your Business-and Get What You Want! drove up from Westport, Connecticut to deliver a crucial message: when a buyer is pursuing you, YOU want to control the terms.

Yet buyers are often much more experienced than sellers, and able to take advantage if you're not careful. Consolidators who have bought many businesses can have you at their mercy, if you're too hasty.

With far more advice than can be jammed into a 500-word article, Gabriel brought up a whole series of "I never thought of that" points to consider.

For starters, make sure your documents are in order-"make an effort to look good on paper, just as if you were raising venture capital." You should have a formal, written business plan-and there are software packages in the $100 range that will walk you through creating one. A business plan is often better than a seller's dated financial statement, because that document will look stale if negotiations take a long time, while a business plan talks about goals and objectives, rather than the current picture as of a certain date.

Audited financial statements will get you a much better price-but these statements are expensive. Gabriel's cost-effective solution: bring in outside auditors for your annual inventory count. Without audited inventory, you can't create an audited statement retroactively-with inventory audits, it's fairly easy to prepare the whole package when you need it.

Don't be in too big a hurry to get an offer in writing. Too often, a written offer will include a short timetable to respond, and preclude you from seeking other buyers. Yet you, the seller, will get the best terms if you have two or more potential buyers vying for your attentions.

It's absolutely crucial that you understand the process. Know the tax consequences of selling assets versus stock. Know the implications of your noncompete agreement and what your expertise represents to the business. And most importantly, understand the financing of the sale. If you offer credit to a buyer, your interest will be subordinate to the banks and other sources of capital-which means if the business goes under, you're left holding an empty bag. And business values do fluctuate. Gabriel cited one business owner who sold for $65 million, bought the company back for $25 million, no money down, when it faltered without him, made it profitable again, and then collected a cool $100 million in an IPO.

Remember-if a buyer comes after you, s/he will also be talking to your competitors-and you should be encouraging other suitors as well. When you're the first acquisition in a group of similar businesses, you'll probably get better terms than those who sell later." If you have good financial documents and good management, you rise to the top. It's just plain smart. Professionalize your management, and customers and suppliers will notice," adding value to your company. Get rid of nonperforming sidelines outside your core strengths.

Finally, When you're least inclined to sell is the best time to sell. You need to catch the sale on an upward trend; [the buyers] will project it out. But if you wait, your value may be going down. It takes 1-2 years to sell; sell while the immediate future is rosy."

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