What next? Featured

8:00pm EDT July 26, 2007

It’s business as usual, but you are starting to think about retirement. There is much to consider so it is important to think things through and prepare yourself and your business to maximize value and retire in the way that best suits you.

“Privately or family-owned businesses are typically run to maximize the benefits to the current owner(s),” says Vincent Della Rocca, director at SunTrust Robinson Humphrey in Tampa. “When considering the valuation and sale of a business, it is important to look at the business through the eyes of a potential buyer. Preparing a business for sale is a process that begins well in advance of the engagement of a financial adviser.”

Smart Business talked with Della Rocca for more insight on what owners should consider as they prepare the business for their retirement.

What are the first steps an owner should take in preparing for retirement and the sale of the business?

This space last month addressed the continuation of a business beyond immediate ownership over the long term. In any circumstances, a business owner should be working on the positioning of the business and be cognizant of the company’s market valuation continually throughout its operation. Make sure that your financial information is correct, up to date and accurately reflects the true underlying business and its ability to generate growth and profits. Expenses and income distributions that are set up for the combination of family and business benefit should be easily identified and explainable. Look at the financials through the eyes of a potential buyer. Make sure that a potential buyer can see the true business potential if they were running that business for their own benefit. Audited financials will provide the most assurance to potential buyers. If you don’t want to go to that expense, at least have an experienced third party look over the financials.

Is there a ‘right time’ to sell?

That is a personal decision, but you need to be realistic in your valuation assumptions given the prevailing market conditions at the time of your decision. You need to consider your age, your health and your family situation, as well as the attractiveness of your company to the market at that point. You will want to reflect on what you want to do in retirement and when you want to start doing it. Are there family members active or interested in the business? How might that affect your retirement plans? Once you have made the decision to start the sale process, you need to determine the best route to follow and do it as expeditiously as possible.

While it is impossible to predict the future, the current mergers and acquisitions market has been very active and valuations have been at all-time highs.

Is retaining an adviser the best route to follow to sell my company?

Yes. Your adviser will assist you in a number of areas, including insulating you, advising you on the best route to take, and executing and completing the sale. Besides knowing the ins and outs of mergers and acquisitions, your adviser will know how to identify and approach potential buyers. Some of the best potential buyers may be competitors, friends, colleagues or someone unknown to you. Your adviser will be able to determine a list of potential acquirers to maximize interest in, and value of, the company. A third-party adviser also insulates you from direct contact with potential buyers and the negotiating processes and the issues that could arise from those processes. Negotiating a sale with a friend or a competitor could have negative ramifications on the terms or pricing of the sale, the ongoing company operations or your personal life. Although your adviser will provide you advice, it is your decision on how closed or open you would like the process to be. Another area for assistance is determining and ranking your objectives. These could include: speed of execution, confidentiality, employee or customer relations, and maximizing price. Remember, you are only going to sell this business once, and you want to do it right.

What should I consider when evaluating prospective buyers?

Your adviser will perform due-diligence on all interested buyers in order to qualify each one. Your adviser should evaluate each buyer’s financial situation, ability and ‘track-record’ of closing as indicated under the original agreed-upon terms. You don’t want a buyer to walk away from the transaction at the last minute or have the transaction fail due to a buyer’s inability to procure financing. Surety of closing is the No. 1 qualifier for any potential buyer.

VINCENT DELLA ROCCA is director at SunTrust Robinson Humphrey in Tampa. SunTrust Robison Humphrey is a service mark of SunTrust Capital Markets Inc. Reach him at (813) 224-2397 or Vincent.DellaRocca@SunTrust.com.