Selling a business is similar to listing
real estate in many ways. You can sell
it yourself by passing word to competitors or peers in trade associations, or
you can work with a broker or investment
banker, who will serve as an “agent” that
represents your business and finds the best
buyers. There are “showings” — in a business’s case, these are portfolios that
demonstrate a company’s success — and
there are sometimes economic issues that
can hinder your ability to sell. Pricing is
important, and timing is of the essence.
“Preparing to sell your business begins
months or years before you make the decision to sell,” says Craig Johnson, president
and CEO of Franklin Bank, Southfield. “As
you get to that point, be sure to align yourself with professionals who can steer you
in the right direction.”
Smart Business asked Mero Capo, president of APB Financial Group Ltd., the
wealth planning and advisory arm of
Franklin Bank, to provide insight on who
might buy your business, how to reach
these prospects and how to position your
company for a smooth sale.
When should an owner begin planning for a
sale?
When selling your business, you want to
plan your exit so you can get the return you
expect. There are a number of factors to
manage before you can sell your business,
from taxes to mitigating the impact of economic shortfalls. High gas prices may have a
negative impact on your business, so you’ll
want to plan early so you can time your exit
around these fluctuations or make up for
any profit hit in other departments.
Regarding taxes, you should consider the
way your business is structured and the tax
implications that could have following a
sale. This brings to light the importance of
timing your sale well in advance — as much
as 10 years ahead of time, if possible.
Once an owner decides to sell, what are
steps to position the business as an attractive ‘buy’ to prospectives?
Everyone who is interested in your business will want to know whether what they
are buying will produce a return on investment, so put together a portfolio of your
business that can serve as a mini commercial to prospective buyers. Include several
years of financial statements, including a
year-to-date statement. Pull together your
best marketing materials — brochures,
sales slicks, testimonials, etc. The point is
to show prospective buyers that you have
run your business well.
Who are potential buyers for businesses?
Where do owners find these prospects?
A lot of businesses are bought and sold
by word of mouth. When you finally
decide to sell, you have a number of
options. Your first instinct will be to discuss this with your certified public
accountant (CPA) or attorney. While
these professionals can lend insight on
the sales process and review any of the
financial and legal details with you, the
chances are slim that they can find a
buyer for you. They have a role to fill in
the sales process, but finding buyers is
not one of them. Instead, look at your marketplace. Check out the competition. They are often the best prospects to
buy your business. They know the industry, they can value your company very
well, and you can usually count on a fair
deal. They may want the assets of your
business, the customer list, the whole
package. It’s a win-win for both parties.
What about business brokers and investment bankers?
Business brokers are well-connected
in the business community and maintain
lists of prospective buyers. They help
determine the value of your business,
and they will help you negotiate with
buyers. Their compensation structure is
similar to that of real estate agents. They
may charge a certain percentage on the
first million and a reduced fee for additional millions. For example, 10 percent
to 11 percent on the first million dollars.
It is beneficial to call a business broker
when the value of your business is $5
million or less. For larger-scale sales,
you may turn to an investment banker.
You may also align with an investment
banker if your industry is rapidly changing or you use proprietary technology.
An investment banker will prepare a
detailed analysis of your financials and
the future value of your business, based
on technology and your industry.
Investment bankers may charge an
hourly fee or a commission based on the
sales price. They may ask for some equity or participation, or their fee structure
may include a combination of these
options.
MERO CAPO is president of APB Financial Group, Ltd., the
wealth planning and advisory arm of Franklin Bank. Reach him
via [email protected]. Reach Craig Johnson, president
and CEO of Franklin Bank at [email protected] or (248) 386-9860.
