Selling a Business in Tough Economic Times…How to Maximize Your Sales Price
We are hearing it daily: We are in tough economic times. Gas prices are rising faster than our Atlanta summer temperatures, the housing market slowdown is affecting many ancillary industries, and recession is on the horizon or even here. The business owners I talk to are asking how this affects the potential sale of their business, and what they should do about it. Some of the questions, all interrelated, are:
Are there buyers out there?
There might be more buyers now than in good economic times. As corporations downsize, laid off workers and managers look to escape the corporate world by owning their own business. There are also industry or strategic buyers seeking opportunity by buying distressed companies.
Will I get the price I want?
That depends. Value is influenced less by the industry than by your specific operation. It is influenced less by the national economy than by the state economy, which is less important than the local economy. If you have a good operation even in a challenged industry, you will get a good price. However, if your Financial Statements have been hurt by the current economy, you must analyze and decide if it is worth hanging in there for a turnaround which may be years away. Determine a current market price based on trailing twelve months of performance versus the valuation on your projections for the future. Is the difference enough to warrant waiting?
How long will it take to sell?
If you are in one of the distressed industries, and aren’t willing to accept a lowball offer, it may take longer to find a buyer who has the confidence to make a move. If you have an attractive business regardless of industry, you will find a buyer
What can I do to make my business more attractive to buyers?
· Clean up the financial statements. Make sure you have 3 to 5 years of clean and accurate financial statements available. If not clean and accurate, it will be discovered in the Due Diligence phase costing you much time and credibility. In addition to your Income Tax Returns, have Income Statements (P & L) as well as Balance Sheets available. Be able to identify the additional financial benefits to the owner hidden in these reports. · Physically improve the looks of facilities. Put new paint on the walls, decorate the public areas, make sure the equipment is clean and running well, and tidy up the office space. If it appears you care about and attend to the details of the physical plant, buyers will believe you approach all aspects of your business with the same concern. · Pay down debt, if you can. Not only will it make your Balance Sheet more favorable, your Income Statement will improve by reducing the debt service. For those industries where selling price is a multiple of Net Income, you will increase the sale price of your business proportionately. · Document your business processes. Even if you may be planning to stay on after the sale for a transition period, potential buyers will be more comfortable if a business manual details exactly how your business is run. Take the time to document all the steps involved in your business cycle, including design, ordering, manufacturing, shipping, sales, disposal, billing, customer service, etc.· Reduce the “you” in your business. If you are your business, then your business is worth less without you. If potential buyers believe that most of the business procured is based solely on your relationship with customers, they will anticipate losing business and discount their purchase offer accordingly. Make the marketing and operational changes necessary to ensure your business can and does run without you. · Prepare a business or marketing plan. Buyers will want to know what you are doing to maintain and grow your business. Document your marketing strategies and identify your major customers. Buyers are not, or at least should not be, satisfied with maintaining what you have built. They want to grow your business. Help them by pulling together information on industry and customer trends, and indicate how you would grow the business if you had the time, energy, and resources.
As you may have realized, instituting all these steps are good moves to make even if you weren’t planning to sell. But having made these adjustments, once you make the selling decision, you can move forward quickly. And finally,
· Gather pertinent business information. Buyers will want to know about such things as the number, skills and experience of your staff, the size and value of your facility, and the type of equipment and the amount of available inventory
· Obtain an accurate and up-to-date valuation of the business. To avoid selling your business at less than market value–or, conversely, pricing yourself out of market—obtain an accurate valuation of the business that is prepared by a professional who is familiar with the market place and valuation methodology.
In my experience, there are always willing and able buyers for attractive, well run, and forward thinking businesses despite current economic conditions. Making your business one of those is the secret to a profitable and quick sale. For more information, you can contact Hal Rogness of Walden Businesses, Inc. at 678-277-9951.
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