Selling a business can be one of the most challenging tasks that business owners face. Before they start the process, they have to ensure they are truly ready to sell, lest they suffer a serious case of “seller’s remorse.”
Robert A. Ranallo, CPA/ABV, JD, CVA, CFF, a partner at Skoda Minotti, stresses that selling a business is a process that no one should go through alone.
“Entrepreneurs should rely extensively on professionals who have been through the process in the past and can relate the positives and negatives about selling a business,” says Ranallo. “Business owners must have a solid strategy in place that will benefit everyone involved in the process.”
Smart Business spoke with Ranallo to learn how to develop an effective exit strategy, find buyers, maximize the sales price for the seller and avoid seller’s remorse — all after answering the key question: “Am I really ready to sell?”
What exit strategies exist for owners selling their businesses?
Many options exist for selling a business. The key is to identify your objectives and then tailor your search for a prospective buyer to those with the requisite skills and abilities to ensure that those objectives are met. Potential buyers include unrelated third parties, family members, management, a group of key employees or in the right circumstances all the employees in an ESOP transaction. Absent a buyer, liquidation is always an option, but it is a last resort strategy. Liquidation deprives businesses of capturing goodwill, going concern or other intangible asset value.
Are there scenarios in which one strategy works better than another?
That depends on several factors, including the nature and complexity of the business, barriers to entry, the depth and qualifications of management, employees and/or family members, and the positioning and competitive landscape of the business within its sector. The best strategy is always structured around a realistic analysis of the strengths and weaknesses of the business. There may be no family members or employees who are qualified for or capable of owning and operating the business. In that case, a sale to a third party may be the preferred route. No matter what, the owners have to be realistic in terms of which strategy works best for them, and in virtually all instances, consultation with trusted advisers helps them gain a better overall perspective in this regard.
If owners sell or liquidate, how can they be sure they are getting the right amount of money for their business?
One way is to get an independent valuation of the business from a certified valuation analyst or an accredited business valuator. That gives the owners a working framework of value. This, in turn, is always impacted by prevailing market conditions. Owners often think the value of their business is higher than what a business valuation analyst will tell them. That is because owners have an emotional attachment to their businesses while valuators do not. The business valuation analyst will focus on benefit stream that prospective buyers would look at acquiring and then analytically determine what a prospective buyer might be willing to pay for that stream. An alternative approach would be to engage a qualified investment banker to help value and/or market the business.
Where can business owners look for buyers?
The universe of buyers is limited nowadays because of the lack of credit. Economically, we are in unprecedented times. Financing considerations aside, owners should look internally and externally for potential buyers. Internal buyers might include family members, management team members and/or employees. External buyers would typically include businesses in the same sector for whom the acquisition might include synergistic value or financial buyers who are making an acquisition purely for investment purposes. Competitors often are also good candidates. Going to market with the hopes of finding an external buyer is where investment bankers should be considered to identify candidates and run the process.
Who should be involved with the process?
At a minimum, the business’s attorney, CPA, board of directors and other trusted advisers who have worked with the owner should be involved. Other business associates, friends or acquaintances who have been through the selling process might be valuable members of the team. They will each have a different dimension to offer that is unique and will reflect their individual experiences, including some of the traps and pitfalls that may be encountered along the way.
What else should owners consider when selling their businesses?
‘Seller’s remorse’ is a primary consideration. Business owners can frequently sell their businesses and make more money than they ever dreamed. The day after they sell, however, two things happen almost without exception: the phone stops ringing and the owners have no place to go. That is often a difficult adjustment for business owners. In evaluating whether to sell, the owners must then ask themselves the most basic of all questions: Am I really ready to sell?
ROBERT A. RANALLO, CPA/ABV, JD, CVA, CFF, is a partner at Skoda Minotti. Reach him at email@example.com or (440) 449-6800.Robert A. Ranallo, CPA/ABV, JD, CVA, CFF