Time is the biggest killer of transactions. Having a plan and being prepared will enable you to seize the opportunity when the opportunity presents itself. A Seller not being prepared to respond can be interpreted as the Seller not being motivated, and not worthy of an investment of time. Having information at your fingertips in an organized, and professional manner means you can respond promptly, adds confidence and credibility to the information to be provided, and reflects well on the Seller.
When potential buyers are on the hunt, they expect responsiveness. Without responsiveness, the potential buyer can lose interest and move on to another opportunity. Time is of the essence; selling a business is a time-sensitive process.
Timing is everything
All businesses have cycles. The ideal time to sell is before the business cycle flattens or is at its peak. Having a favorable economic environment in general and low to moderate interest rates are also desirable factors. Having steady or growing sales is a requirement banks have established as a prerequisite to granting long-term financing. When sales are decreasing, no one knows when will the decline end.
It is a good idea for a business owner to consider contacting a business broker or intermediary to get a reality check on the current fair market value of their business in the preparatory stage of going to market. At the same time, inquire about what can be done to increase the value of the business. Removing non-business or personal expenses from the Profit and Loss Statement can make a significant difference in the fair market value of the business. Consider that every dollar you can add to profit can be worth a multiple of 2 to 3.5 times in the price of your business. Your business broker or intermediary can help you identify expenses that cannot be used as “add-backs.”
Due diligence – never too early to start preparing
Before going to market, all information should be assembled in an organized and professional manner, then scanned, and saved as a PDF. This will allow for fast delivery and keep the momentum going. Many business brokers and intermediaries, including Dolan Sales, Inc., use secure virtual data rooms for this purpose. Using a data room allows for tracking what was downloaded and when, as well as access control.
At the time you are getting an estimate of the fair market value range from your business broker or intermediary, ask for a checklist of items that will be needed. This should also include the broker’s Seller Disclosure Statement to allow you to be prepared. Items typically needed are the last three years of yearend financial statements and federal tax returns with all attachments, any licensing or distribution agreements, any equipment leases, and the business facility lease. Other information needed is a statement showing the top 10 customer sales concentration, gross sales month by month for the prior three years, and list of all business assets with a value of more than $500, as a few examples.
Be sure to disclose all issues that can affect the value of business upfront. Everything will come out in due diligence or in the bank’s loan underwriting process. When surprises arise late in the process, they destroy credibility and may very well kill the transaction or cause a renegotiation of the transaction. It is better to get all disclosures out, and on the table, in the beginning.
Having all due diligence information organized and available will allow the sales process to quickly go to contract, secure the funding, and close. Providing full and accurate disclosure can protect the Seller if a dispute arises after the transaction closes. If the Seller provided full and accurate disclosure about the business, then the Seller can make the argument that the potential issues were known and accepted by the Buyer at the time of the sale.
If you would like a confidential conversation about how to prepare your business to be sold, receive the best price possible, and get the transaction funded so you get all cash at closing, please contact me, Bob Dolan, at 888-893-6661 or by email firstname.lastname@example.org. My LinkedIn profile is: http://www.linkedin.com/in/dolansales