Top 12 Tips to Get the Most Value from the Sale of Your Middle-Market Business
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By James Cassel
October 17, 2013
A little planning can go a long way toward helping you to obtain the maximum value for your business. The sooner you begin, the better.
Throughout my career in leading the sales and purchases of middle-market businesses nationwide, I’ve found the following 12 tips to be the most helpful for business owners planning to sell. The further in advance of the sale that these recommendations are implemented, the greater the value that can be created. They’re also generally good business practice for anyone in business.
- Make sure that your financial and accounting records are in order so that you can readily give potential buyers a clear, accurate snapshot of your historical financial results and condition. This is critical to ensuring that you get top value for your business. It’s also a good idea to prepare a budget and maybe get audited financials.
- Review and/or restructure your agreements with customers as necessary. Do your contracts have special terms, such as change of control provisions or requirements that you personally provide services, that may affect the longevity of the contracts when you’re no longer involved with the business?
- Review and, if necessary, restructure your leases. Often, long-term leases for excess space and high rates can be roadblocks to completing deals, while the opposite is true for long-term leases at favorable or below-market rates. Do you have a long-term lease that new buyers will have to continue or any special clauses that will create issues for potential buyers?
- Review and/or restructure agreements with your suppliers. As in #2 and #3 above, you should determine whether you’re locked into agreements that may not appeal to potential new buyers or reduce value. Now would be a good time to try to modify or terminate any agreements that you don’t consider favorable to avoid turning off potential buyers.
- Review your insurance coverage. Consult a trusted insurance agent to evaluate your current coverage and fill any gaps that may exist. For example, depending on your business, liability coverage and tail coverage might be critical.
- Do your personal tax and estate planning. Consult with qualified lawyers and accountants to ensure that you have structured your ownership in the most tax-advantaged way in the event of a sale. Doing this now vs. just before a sale can be very advantageous.
- If you have a family-owned business, talk with your family. Make sure that your family members and other key stakeholders fully understand the possible impacts of the business sale on everyone involved. Especially if your family members either work at or are dependent on your business, it’s critical to have their buy-in.
- Evaluate your intellectual property. Work with qualified attorneys to make sure that it’s well protected and owned or licensed by the right entities. Also, make sure that you have proper licenses for all of the software you use.
- Evaluate management. Ensure that you have appropriate management in place and that there are no gaps that you should fill before you put your business on the market. Also, examine your employment agreements to ensure that you have the necessary noncompete, confidentiality, and other provisions.
- Determine whether there are environmental issues. Either remediate them or at least develop an accurate understanding of what will be required to do so.
- Get organized. This gives a good impression and strong comfort level to potential buyers, which is a priceless intangible.
- Hire an effective public relations and marketing firm. Positive news coverage in credible media outlets that reach potential buyers as well as current and potential customers can help to elevate firm and brand awareness, secure credibility for your business, and even generate inquiries from potential buyers. Depending on the nature of your business, social media might be an appropriate tool to leverage as well.
Without a doubt, the tips listed above are general good business practice, even if you’re not thinking of selling yet. The key is to work with qualified advisors, including attorneys, accountants, and investment bankers, who can give you the strategic counsel and guidance you need to put your business in the best possible position. It is a good idea to assemble the team far in advance of a contemplated sale. By minimizing the weaknesses and playing up your strengths now, you can help to ensure that you get the best value for your business whenever you’re ready to sell.
James Cassel (firstname.lastname@example.org) is cofounder and chairman of Cassel Salpeter & Co., LLC (www.casselsalpeter.com), an investment banking firm with headquarters in Miami that works with middle-market companies. Before founding Cassel Salpeter & Co., Jim was co-founder and chairman of Capitalink, an investment banking firm that was acquired by Ladenburg Thalmann & Co., a New York Stock Exchange member firm where Jim continued and served as vice chairman, senior managing director, and head of investment banking. He also was chairman of a significant company that owned hospitals.