1) Who are the buyers?

Financial Buyers. These are investment groups that buy private companies. The limited partners that invest in private equity groups include institutional investors and individuals of substantial net worth.

Strategic Buyers.  These are buyers with specific reasons for wanting to buy a company besides their return on investment. Strategic buyouts focus on how companies will fit together and how their anticipated synergies will enhance long-term earning power.

High Net Worth Individuals.  These individual “owner-operators” typically acquire and manage the companies themselves.

2) What are buyers looking for?

The most important thing buyers look for in a business is a healthy income stream with consistent and predictable earnings and a strong outlook. Buyers want to see a steady or positive trend on earnings, regardless of industry or economic conditions.

3) Why is confidentiality important?

Confidentiality must be the primary objective throughout the marketing process. If employees, vendors, or competitors learn that a business is for sale, it could adversely affect the business and/or the transaction.

4) How long does it take to sell a business?

Selling a business is a complex and difficult process that takes time. If marketed properly, most businesses sell within four to twelve months of being taken to market.

5) Is there an optimal time to sell my business?

Yes. The best time to sell a business is during a time of strong financial performance. If your industry is going through consolidation and strategic buyers are interested, it may be the best time to sell. Timing the sale of your company with economic conditions can increase the value of your business. Debt markets can sway from conservative to aggressive and interest rates vary. Selling your business during a period with aggressive lending and lower interest rates allows buyers to leverage more debt and ultimately pay more for your company.

6) When should I begin preparing my business for sale?

Ideally, you should begin preparing your business for sale two to three years in advance. However, any amount of preparation time is better than no preparation at all.

7) What should I do to prepare my business for sale?

Organize Financial Statements.  Organize your company’s financial statements so they are transparent and allow prospective buyers and lenders easy evaluation. Audited financial statements will provide further assurance to outside parties. Business owners should also reduce the number of “perk” expenses deducted through the company and eliminate non-operating assets from their balance sheets.

Reduce Dependencies.  Many businesses are over-reliant on a single large customer or supplier, a key product line, a key employee, or the owners themselves. These risks and dependencies decrease many companies’ values. Try to build a “diversified portfolio” so your company provides several products and services for a wide base of customers and industries.

Build Infrastructure.  A strong infrastructure will also decrease a company’s dependency on its owner and/or key manager, which increases value. In other words, strive to make yourself redundant. You can achieve this by properly training employees, bringing in modern equipment, or by implementing effective systems to manage financial reporting, inventory, and other facets of your company’s operations.

8) Why do some businesses never sell?

Unrealistic Price Expectations.  The primary reason why some small businesses do not sell is that the seller has unrealistically high price expectations. It is very important for business owners/sellers to establish a realistic and credible idea of fair market value for their businesses and to support it with historical financial information and market comparables.

Insufficient Marketing.  Sellers should be prepared to have their businesses confidentially marketed for a minimum of six months. The intermediary hired to market and sell your business should create a competitive environment where multiple buyers bid for the business.

Commitment to the Process.  Business owners should be prepared to spend time with prospective buyers and provide sufficient (qualified) information throughout the sales process when requested. This is most important after a Letter of Intent has been signed and the buyer has begun the due diligence process.

9) How can deal terms and structure affect me?

Generally, the better the terms offered (such as post-closing payments based on performance or seller financing), the higher the total transaction value. However, sellers must seriously evaluate these payment options because they bear significant risks. The deal structure (i.e. asset sale versus stock sale) will also influence the transaction price. Know that proper tax planning is essential in maximizing the net proceeds of a sale. Many business owners tend to focus too much on the gross proceeds (before taxes) of a sale rather than the net proceeds.

10) What advisors should I consult and what costs are involved?

Selling your business is a complex process and using the expertise of a professional intermediary, attorney, and accountant are highly beneficial to you. It is important that you continue to focus time, energy, and expertise on managing your company. Professional intermediaries typically collect a fee after the sale of your company. Usually, the fee is a percentage of the selling price, typically starting at ten percent and decreasing based on the size of the deal. Some “seminar” intermediary firms charge large upfront fees after making extraordinary promises that are unrealizable. Reputable intermediaries will typically require an up-front retainer to confirm you are committed to the sale process, but will earn the bulk of their fees after a sale is complete.

This document is for informational use only and may be outdated and/or no longer applicable. Nothing in this publication is intended to constitute legal, tax, or investment advice. There is no guarantee that any claims made will come to pass. The information contained herein has been obtained from sources believed to be reliable, but Mariner Capital Advisors does not warrant the accuracy of the information. Consult a financial, tax or legal professional for specific information related to your own situation.