shg: selling your business, part 3

SELLING YOUR BUSINESS:

Part 3: Preparing for a Sale

Presentation Series by Schwartz Heslin Group, INC. (SHG)

The SYB Series Part 1: Introduction and First Steps Part 2: What is Your Company Worth Part 3: Preparing for a Sale Part 4: Your Role in the Transaction

Once you have an idea about the value of your business, begin planning for the transaction…

Financing 4 primary methods:

Buyer down payment Seller financing

No seller financing can result in significant sale price discount

Loan – SBA or conventional Earn-out

Will debt be used to finance transaction?

Earn-outs Type of seller financing Payment for revenue stream over a

period of time Reduces buyer risk Seller pays income taxes over time Details of agreement crucial to who

benefits

Employment Agreements Guaranteed job under new owner Ask for written job description Questions to ask yourself:

What resources are available to you? Who do you report to? Level of autonomy What if it doesn’t work out? What circumstances could result in your

termination

Non-Compete Agreements Usually 3 to 5 years Covers a defined territory Amortization to Buyer

Taxes Impact of a sale on taxes WILL be

complex Asset sale or stock sale? What is the type of business entity? How will purchase price be allocated?

Seller seeks to maximize after tax proceeds from the sale

Buyer seeks to minimize consideration paid relative to after tax cash future cash flow

Financials Maximize profits, even if at the expense

of lifestyle Report all income, deemphasize tax

planning Ensure the accuracy and easy

accessibility of records Consider having your financial

statements audited Better and improving financial metrics

will fetch a better sale price

Assets Jettison unnecessary, outdated, and non-

operating assets Will improve the quality of your asset base

and increase ROA Reduce outdated inventory Update operating assets

Especially technology and software

Marketing and Networking Formulate and implement an aggressive

marketing plan: Reduce customer and supplier

concentration Build your network

Industry groups Competitors Consultants in the industry Related businesses Sources of financing

Management and Workforce Develop strong, independent

management team Buyers often holdover existing managers Consider contracts and/or retention

bonuses Preferably usher family members out of

business Replace unproductive or redundant

employees

Miscellaneous Address:

Environmental issues Regulatory issues Outstanding lawsuits Outstanding warranties

Get minority owners on board If not, be prepared to afford them certain

rights under the applicable laws in your jurisdiction

Update and Streamline Operations Update and back-up all databases Maintain accurate information on

revenues by line of business and by customer

Trademark and copyright all logos, brands, and systems

Now that your preparations are complete and you have streamlined operations, we can address the actual transaction

Next in the SYB Series:Part 4: The Transaction