 Strategic Planning
Best Practices
Selling Your Family Business?
Get Ready – Get Set - Go
by Dan Maloney CPA CFP
GET READY.
Deciding whether or not to sell the family business can
be a much more difficult decision than the decision
initially made to invest time, effort, and money to
start the business. Why? It’s because both the pressing
everyday business needs and the sometimes volatile
family emotions come into play. Even if the founders can
get past the formidable obstacles of dealing with other
family members’ concerns, changing dreams and possible
objections, they still have to deal with their own
separation anxieties – all while trying to stay focused
on the business.
It’s perfectly normal for entrepreneurs to find
themselves wavering back and forth on the “keep-or-sell
playing field”. They should expect to have strong
emotional ties to the business that consumed their
waking hours for a great part of their life. They have
had a long ride on the family business roller coaster
and experienced its ups, downs, jerks and turns.
BUT - Once the decision to sell has been made, it’s time
to move forward and prepare for the sale.
GET SET.
Begin by asking yourself the big question: “Do I have a
saleable business?” The answer to the question isn’t
always “yes”, even though the face in the morning mirror
swears it is.
Several factors make a business attractive to buyers. A
history of steady or growing profits is the primary
factor. To show the business’s profitability in the best
light, entrepreneurs may need to “recast” their
financial statements. Sometimes entrepreneurs can be
overly aggressive in claiming all of their legal tax
deductions and a financial recasting exercise may be
fruitful. Aggressive deduction areas may provide
opportunities to decrease expenses on a “proforma”
financial statement. For example, if the yearly training
was conducted overseas, the excess cost could be
replaced with the cost of local training. Also, any
generous family compensation costs could be replaced
with “arm’s length” compensation levels. All owner
benefits should be examined during the recasting
exercise. The purpose of the recasting exercise is to
show prospective purchasers the level of “normal”
profits that they can hope to achieve.
Long-term sales contracts can be a very attractive
feature to a prospective buyer, especially if pricing is
favorable and the contracts are transferable. If there
is an opportunity to convert long-term customer
relationships to written contracts, the buyer will gain
comfort knowing that cash flow is not solely dependent
on the current owner’s relationships with the customers.
This will give the buyers breathing room to build their
own relationships.
If a lease is on a month-to month basis, explore the
possibility of negotiating a long-term lease. Also make
sure the lease is transferable to a new owner without
price escalations. If the lease will not be renewable by
a new owner, consider moving immediately. Buyers will
not want to deal with relocation as they are learning
the business.
A dirty and unkempt workplace can be an initial turnoff
to a buyer. Just as a homeowner may not notice excess
clutter, a business owner may not notice the lack of
basic maintenance. View the business from a buyer’s
eyes. Any lack of routine maintenance will stand out to
a newcomer. Also make sure equipment is in good repair
and obsolete inventory is disposed of.
Enthusiastic employees leave a lasting good first
impression with a buyer. This is the time to “out
counsel” poor performers and create some cheerleaders.
This is especially important at the supervisory level,
since the buyer will eventually wish to speak with
management personnel. Sometimes having employment
contracts with key personnel will ease any fears of
business disruption on the part of both the key
employees and the buyer.
GO.
Planning to sell a business is no small task, and the
end result is never certain. It can seem like a second
job. Enlist the help of other family members. They can
be great cheerleaders. Consider hiring a professional.
They can help you stay focused and help make the
business more saleable.
When asking the big question, “Do I have a saleable
business?” look at the business from a buyer’s point of
view. If you were in the market to buy a business, would
you buy your own company?
Daniel J. Maloney, CPA, CFP, is the Founder and
Principal of Certified Acquisition Associates LLC, a
business intermediary firm specializing in sales,
mergers & acquisitions of middle market companies. If
you have questions about preparing your business for
sale, send a note to
questions@certifiedacquisitions.com
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