For most business owners, their company is their most valuable single asset. So why is it that we tend to know the value of our stock portfolios, our homes and even our cars but don’t have a clear realistic understanding about the value of our business? Doesn’t it make sense to know the value of something that makes up such a large portion of a business owner’s financial portfolio?
Selling a business is a once-in-a-lifetime endeavor for many business owners. It is critical, therefore, that you are fully informed prior to moving forward with the business sale process. Having specialized in managing the sale of privately held companies for the past 30 years, I have received many questions about the business sale process.
When pursuing the sale of your company, it is important to be prepared. Being prepared not only means getting your books and records organized and preparing a quality descriptive executive summary of your company, it also involves educating yourself to properly address the common questions that will inevitably be asked by prospective acquirers.
You’ve thought about it, perhaps spending some sleepless nights debating what to do next with your New York or New Jersey based business. Now you’ve decided it’s time to sell. You have good reasons for the sale—reasons that shouldn’t scare a prospective buyer. So now comes the fun part—or so you think.
The term “independent business owner” doesn’t just refer to your life as an entrepreneur. It also denotes the mindset that life as a business owner demands. You’re confident, independent, and maybe a bit stubborn. These vital traits have helped your business thrive, but can work against you when you’re ready to sell.
Selling a business can feel complicated and overwhelming. It’s normal to have some concerns when you begin. No deal is a certainty, but working with an expert in the industry who is deeply knowledgeable about the business sales process can increase the odds of a successful closing.
In mergers and acquisitions, a letter of intent or term sheet can clarify expectations and responsibilities to both parties. The primary purpose is to ensure the parties agree to key terms before they utilize significant resources in pursuit of an acquisition. Here’s what to include, and how to structure an acquisition letter of intent.
Selling your business can be equal parts daunting and exciting. You’ll need to address legal, tax, and practical considerations. One of the most daunting legal complexities is deciding how to structure the sale: as a stock or asset sale? Let’s look at the key features of the two sale varieties.
During the sales process, you’ll probably sign a letter of intent (LOI) that initiates the process of due diligence and grants the buyer a limited period of exclusivity. After that, you’ll need to draft a purchase agreement. This incorporates the terms in the LOI, adds negotiated terms and conditions, and will be the point of reference for any issues that arise during or after the sale.
The decision to sell or retain a business is a question pondered by many business owners. Selling a business is a momentous decision and involves critical analysis and contemplation. Although there are a myriad of factors that influence this decision, most of the pertinent issues fall into two primary categories: Financial and Lifestyle Considerations.
Typically, the market will establish a price range for a company, just as it determines a price range for products and services; however, value maximization can only be achieved when the universe of qualified and motivated prospects fully appreciate a company’s future growth and earnings potential.
As a Merger and Acquisition firm, we often receive the following question from entrepreneurial business owners – how do I know what my business is worth? Business owners are commonly looking for an estimate of value to determine if they should consider selling now or sometime in the future.
Typical high-level concerns for business owners considering the sale of their business include maintaining confidentiality, understanding and obtaining a realistic company valuation, formulating a favorable deal structure, and choosing the right professionals to represent them in the process.
Sun Mergers & Acquisitions’ sister company, Sun Business Valuations, conducts business valuations for a wide variety of purposes. These reasons include negotiating a sale, securing financing, settling a legal dispute, and for a shareholder buyout to name a few.
While the importance of timing is paramount, it tends to be underestimated when considering the sale of a business. Determining the “right” timing is increasingly difficult in today’s environment with many complicated external factors impacting business value and marketability.
For many companies, 2011 can be categorized as a transitional year. Business owners finally appeared to be settling in and getting comfortable with the “new normal” that has presented itself after years of unpredictability and turmoil resulting from a wavering economy.
Having handled the sale of privately held companies for nearly 30 years, I have witnessed the full gamut of emotions experienced by clients during the business sale process. The majority of business owners are “Type A” personalities, and when undergoing the sale of what is typically considered their most prized asset, emotions can run rampant.
Letter of Intent
When selling a company, a Letter of Intent (LOI) is signed by all parties to indicate that the buyer and seller have reached an agreement-in-principal as to the substantive business points of the transaction.
I have found seller’s remorse to be the most significant emotional barrier that impedes the life-long goal of selling a business. In handling the sale of over 300 businesses in my career, I have never experienced a situation in which seller remorse was non-existent during what is typically a once-in-a-lifetime event and an entrepreneur’s largest transaction.
As a business owner, you constantly must make adjustments, face down competition, and manage change with resilience, but are you truly ready to capitalize on what may be the greatest financial transaction of your lifetime, or have you compromised your position with procrastination?
Revenue composition has a major impact on the value of your company. A business owner should always have a realistic understanding of the factors that increase or detract from business value, regardless of their intention and timing of selling the business. A common misconception is that someone can estimate the value of a business based upon a formula that is tied to gross revenue;
Business valuations are not a commodity. There are many differentiating factors that elevate one firm above another in terms of quality, expertise, certification, and service. A number of elements should be considered in determining which business valuation firm will best service your particular needs and the engagement at hand.
Study Points to a “Seller’s Market” Ripe for Acquisition and Identifies the Most Active Industry Sectors.The International Business Broker Association (IBBA) and M&A Source in conjunction with Pepperdine University prepare quarterly reports regarding the market conditions for businesses being sold in the “Main Street” market (values of $0-2 million) and lower middle market (values of $2-50 million).
What Is EBITDA and How Does It Impact a Company’s Valuation? Before your eyes roll up into your head, take a few minutes to read this very important article! EBITDA is used to analyze a company’s operating profitability before non-operating expenses (such as interest and other non-core expenses) and non-cash charges (depreciation and amortization).
Careful preparation and advanced planning can significantly increase the likelihood of a successful business sale and have a positive effect on valuation. The following are proactive steps a business owner should take prior to beginning the business sale process:
You’re the expert on your business. You’ve seen it through ups and downs and invested years to build your business. It might seem like a no-brainer that you’re the ideal person to sell what you’ve built but there are significant advantages to using a qualified business broker or M&A advisor.
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