James Cassel: Plan now to get the most value from selling your business

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By: James Cassel
April 14, 2013

When selling your business, advance planning and strategic action can make a big difference toward helping you obtain the maximum value for your firm. The sooner you begin your preparation, the better.

Here is some practical advice that I have learned throughout my career leading the purchases and sales of middle-market businesses in South Florida and around the country. These tips are not only helpful if you’re planning to sell — they’re also generally good business practice.

•  Hire an effective public relations firm. Positive news coverage in credible, top-tier media outlets that reach current and potential customers as well as buyers can be invaluable in terms of elevating firm and brand awareness, securing credibility for your business and even piquing interest from potential buyers. Although directed to enhance the business, raising visibility is important. These days, depending on the nature of your business, social media might be an appropriate tool to leverage as well.

•  Get your financial and accounting records in order. It is imperative for you to be able to give potential buyers a clear, accurate snapshot of your historical financial results and condition. Without this, you won’t be able to get as much for your business. You’ll have to do all this paperwork anyway, so the sooner you get your financial house in order, the better. Preparing a budget is helpful too.

•  Review agreements with your customers. Do you have long-term contracts that will bring recurring revenues to the purchaser of your business? Do your contracts with customers have special terms, such as requirements that you personally provide service to the accounts or change of control provisions, which may have an impact on the longevity of the contracts when you’re no longer involved with the business? Make sure you review and structure agreements in advance so they will enhance the value of your business and appeal to potential buyers.

•  Review your leases. Do you have a long-term lease that new buyers will have to continue, or do you have a short-term lease giving buyers maximum flexibility? This can enhance or decrease the value of the business. I recently worked on a deal in which a long-term lease for excessive space became a roadblock to completing the deal. Sometimes, a long-term lease at favorable rates can enhance the value of a business.

•  Review agreements with your suppliers. Again, like in No. 4 above, you need to understand whether you’re locked into agreements with suppliers with which the new owner(s) of your business will be required to comply. Depending on price and terms, a long-term supply agreement can be an asset or a liability. If there are any agreements that you don’t consider beneficial to your business, then now would be a good time to try to terminate them or address the issues to avoid turning off potential buyers.

•  Review your insurance coverage. Depending on your business, liability coverage and tail coverage might be very important. Consult a good insurance agent to evaluate your existing coverage and file any gaps that might exist.

•  Do tax and estate planning. Work with qualified lawyers and accountants who can help ensure you have structured your ownership in the most tax- advantaged way in the event of a sale. Again, the sooner you do this, the better off you’ll be.

•  Discuss the possibilities with your family. As in most everything in life, it’s important to have an understanding with your family members – especially if they are part owners of your business or work in the business. Make sure your family members and other key stakeholders fully understand the possible impacts of the business sale on everyone involved.

•  Evaluate your intellectual property. Make sure it is protected and owned or licensed by the right entity. This can be a great asset or, in some cases, a great liability. Work with a knowledgeable lawyer to get your house in order. Make sure you have proper licenses for all the software you use.

•  Evaluate management. Do you have appropriate management in place or are there gaps that you should fill prior to putting your business on the market? Examine your employment agreements to ensure you have important non-compete, confidentiality and other provisions that can significantly enhance the value of your business.

•  Determine if there are environmental issues. Commissioning a study to identify all environmental issues can be a good idea. Then, you should either remediate them or at least have an accurate understanding of what will be required to clean them up.

•  Get organized. An organized business owner who comes to the table with his or her house in order gives a good impression and strong comfort level to potential buyers.

The key here is to work with qualified advisors, including attorneys, accountants and investment bankers, to put your business in the best-possible position for sale. By addressing the weaknesses and playing up your strengths now, you can help ensure you get the best value for your business. 

James Cassel is co-founder and chairman of Cassel Salpeter & Co., LLC, an investment-banking firm with headquarters in Miami that works with middle-market companies. www.casselsalpeter.com