Smooth ‘sale’-ing Featured

8:00pm EDT June 25, 2007

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 meroc@apbfinancial.com. Reach Craig Johnson, president and CEO of Franklin Bank at clj@franklinbank.com or (248) 386-9860.