Selling Your Business

When it’s time to head for the exits, look before you leap.

By Michael P. Weiner , Partner with Fox Rothschild LLP On Feb 26, 2015

Every business enterprise has a life cycle: formation, growth, sustainability and liquidity. 

For a business owner contemplating a liquidity, or “exit” event, whether as a result of personal choice or an unsolicited offer to sell, there are multiple issues to be considered. First, is now the right time to exit, and if so, why? Have you grown and sustained the business at a level which you no longer have the energy or resources to maintain? Are there industry or market factors at play that make your business particularly attractive to a prospective buyer at this point in time? Second, how do you determine a defensible market value for your business? Has an appraisal ever been done? Are audited financial statements available? Third, how do you go about identifying an appropriate buyer? Business brokers? Investment bankers? Industry contacts? Word of mouth? Fourth, how do you manage the sale process while also managing your business? Do you have experienced financial and legal advisors to guide you through the process?

The reality is that for the vast majority of business owners, their first exit is most likely their last exit. The process is totally foreign to them, and requires a thought process and planning exercise unlike those utilized in the formation and growth of the business. However, in much the same way that the successful growth of a business lies squarely within the human resources of enterprise, the key to a successful exit transaction lies squarely within the “human resources” of the business owner. Preferably, this is a time to be proactive and not a time to be reactive to unforeseeable changes in circumstances, or even an unsolicited bid. A successful exit transaction may require up to a year in order to properly plan for and execute the transaction, keeping in mind that during that year the business owner will have (at least) two jobs: manage the company, and sell the company. If the company is not effectively managed during the sale process, and financial results turn negative, the pool of suitable buyers may decrease.

Assuming that a decision has been made to pursue an exit transaction, it is critical to establish a baseline valuation for the business which will inform the owner as to what the market will pay, and, based on that intelligence, whether the needs of the owner can be met in the current environment. Assuming that exercise results in a favorable valuation, the business owner should take a hard look at the business with the assistance of its financial and legal advisers and see if it is ready for the scrutiny of a third party’s prying eyes: are the financial records in good shape?; are the other business records (contracts, leases, etc.) well organized?; are there any key employees that need to be “locked up” so that they are incentivized to stay on, or, if not, are subject to non-competes, etc? Once these issues have been addressed, the business owner can begin to actively explore the market for a buyer.

About the Author: Michael P. Weiner is a partner with Fox Rothschild LLP. He can be reached at [email protected]. 

 

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