With plenty of angst and working long hours, you’ve spent a lifetime building your company. Now, you’re dreaming about an exit strategy – selling out before your retirement for easy living.
Perhaps you’ve exhausted so much time and energy growing your company you haven’t given any thought to the business-selling process.
Your options: You can find a buyer or create an ESOP, an employment stock ownership plan (scroll down to the Coach’s Corner for a link to information on ESOPs).
Selling a micro business is relatively simple. But selling a larger business is more complicated, and can be costly. Actually, the selling costs can be enormous – shockingly more than you can anticipate.
If you don’t do enough due diligence, there are two possible undesirable outcomes. You might not walk away with your desired pile of money. Even worse, you might not even be able to sell your company.
It’s paramount to hire the right transaction experts, which will cost you unanticipated expenses.
However, you’re likely to benefit from a higher sales price, the best possible terms and conditions, and will consummate the deal more quickly.
But if you’re tempted to take shortcuts – not hiring experts for your transaction – it will likely lead to a disaster.
One consideration is your EBITDA – the acronym for earnings before interest, taxes, depreciation and amortization. Typically, businesses sell for four to eight times EBITDA.
You’ll be paying many of the same type of costs whether you sell high or low. You might be surprised to learn such costs – expenses for accounting, consulting, investment banking – are often 10 percent of your selling price.
Experts will help you prepare to sell at the maximum price.
Depending on your industry and type of company, there are broad-spectrum principles to keep in mind.
You’ll be paying many of the same type of costs whether you sell high or low. You might be surprised to learn such costs – expenses for accounting, consulting, investment banking – are often 10 percent of your selling price.
Three stages of selling your business:
— Preparation to sell
— Identifying prospective qualified buyers for a letter of interest, list of terms and letter of understanding
— Processes for negotiations, the purchase/sell agreement and closing costs
The first key step is to plan your estate well in advance, at least 90 days, before you solicit an offer. Otherwise, you risk facing the wrath of the Internal Revenue Service. The IRS isn’t interested in aiding you with any tax-saving tactics.
Another step is to select a deal team that has sufficient expertise in such transactions. Your team should be synergized to work together for your benefit. That includes the deal’s makeup, sales price and financial terms, and lessening your tax obligation from the sale.
You’ll need a specialist in mergers and acquisitions to prepare your company for selling, and to be your advocate throughout the sales transaction.
A second deal team member should be a wealth-management expert. You’ll want to keep your money and avoid unnecessary taxes. The fees will hinge on the volume of your assets being managed.
The third element of your deal team will be a law firm, accounting specialist and an investment banking firm. Admittedly they’re all expensive – each will charge as much as $300,000 – possibly more.
The investment banker will charge a retainer, expenses and even a so-called success fee of three to 10 percent of the sales price. There might be a requirement of warrants, which would be convertible to stock – at a future date and value.
The accountant might have to audit your financial statement for the last three years.
OK, so all of this is costly and complicated. But with the right due diligence, you’re likely to increase your odds to achieve your dream.
From the Coach’s Corner, related information:
Selling Your Firm? Is ESOP a Good Option? Yes — If you’re thinking about retirement and want to sell your business, you might wish to consider the benefits of selling it to your employees via an employee stock ownership plan (ESOP).
Selling Your Company for Tons of Gold Takes Planning — Many startup entrepreneurs dream about an exit strategy – launching their business, being acquired and striking it rich. Here’s how to make it easier.
Tips on Understanding the Mindset of IRS Auditors – An IRS audit is enough to make you tense with cold sweat in the palms of your hands. More businesspeople have complained to me about the mean-spirited treatment at the hands of IRS agents than any other federal agency. Worse, the agents’ frequent lack of common sense is shocking.
When Should You Develop an Exit Strategy? Now…Here’s How – You should always have an exit strategy in place – no matter what. Whether you’re just starting out or you’re a veteran business owner, you should always have an exit strategy.
Angel Investor: Tips for Increasing Cash Flow, Profits – A successful angel investor shares his tips for good cash flow and other profit issues.
“Ninety percent of selling is conviction, and 10 per cent is persuasion.”
-Shiv Khera
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