Selling Your Business: How to Navigate the Deal

Successfully

John Schimmoller, CPA

Certified Marketing Consultants, Ltd.

January 11, 2017

Selling Your Business: How to Navigate the Deal Successfully

The following material presented by Certified Marketing Consultants, Ltd. is based upon historical data collected by CMC, Ltd. The opinions and conclusions expressed during this presentation are the unbiased and professional opinions of CMC, Ltd. and are being presented for the purpose of discussion only.

Thinking about selling your company? Typical questions when considering the sale of your business will

include…

• “How much is it worth?”

• “Is now a good time to sell?”

• “How long will it take?”

• “Can we keep it confidential?”

• “Who might be interested in buying my business?”

• “What type of transaction structure can we expect?”

• “How do we get started on the process?”

“How much is my business worth?”

• Value is not a black-and-white concept.

• Value is different from person to person based on individual preferences and purpose. This sometimes leads to differences in opinion:

• Estate Taxes• Divorce Settlements• Buyers & Sellers

• Benchmark the worth of your company by having a business valuation performed.

“How much is my business worth?”

• Value to small business owners is typically based on:

• Annual income stream

• Status in the community/industry

• Ego

• Which of these provides value to the buyer?

• None … value to a buyer is based solely on the expectation and likelihood of future earnings and cash flow

Buyers look to many factors that contribute to future earnings and can affect value …• Historic earnings (one of if not the most important factor)

• Growth trends

• Margin performance

• Stability

• Management strength, depth, and continuity

• Owner’s role in the business

• Customer base

• No customer >5% of sales

• Industry concentrations

• Multi-year contracts in place

• Years as a customer

Factors that contribute to future earnings and can affect value … (continued)

• Salespeople continuity• Contracts• Independent reps vs. commissioned employees• No salesperson >10% of sales

• Investment in the business (overhead)• IT (hardware, software, e-commerce, administrative systems)• Capital expenditures• Human resources• Customer acquisition systems

• Operational excellence/”Best Practice”• Monthly financial statements, budgets, operating plan• Policy & procedures manual• Direct contact with customers by customer service

Factors that contribute to future earnings and can affect value … (continued)

• Niche products or services, unique distribution channel and/or market

• Geographic location

• Expansion into new markets

• Remote shipping point (suppliers)

“Is now a good time to sell?”

• YES!

• 2016 was and excellent year for acquisitions and 2017 looks as good or better.

• The M & A market in the industry is extremely active despite and in some cases because of uncertainty in the world.

• It is neither a buyer’s or seller’s market as we’ve seen in the past.

• The number of active industry buyer’s paying reasonable prices is at an all time high.

The key is for selling companies to be available when buyers are ready to buy!

“I’m still not sure whether to sell?”

• The biggest mistake sellers make is indecision.

• It’s always better to sell when times are good.

• The obvious strategy is to buy low and sell high but many sellers don’t get it … they build good companies but don’t realize the fruits of their labor. They many times can have the best of both worlds?

Trusted and experienced advisors will help to ensure you don’t make a big mistake!

“How long will it take to sell my company?”

• CMC has completed transactions in a matter of weeks before.

• 60 to 90 days is not uncommon.

• But, unless you are motivated to sell quickly, you should expect the process to take 6 months from start to finish.

• CMC has represented clients who were not in a hurry. They wanted to find the “right” buyer and the right deal. This (intelligent) approach can take a year or more.

Timing can be affected significantly depending on how efficient and effective your advisors are.

“How can we keep the sale confidential?”

• Don’t tell ANYONE who doesn’t NEED to know.

• Blind solicitations.

• Non-disclosure Agreements.

• Trusted advisors and brokers.

• Careful, discreet communications; cell phones, email, text, etc.

• Be prepared to answer direct questions.

Sometimes it does leak out. But the consequences are usually not significant.

“Who might be interested in buying my company?”• Buyer data base:

• National competitors• Local competitors

• Individual industry buyers who have expressed an interest in buying a company for themselves.

• Other non-industry buyers.

• Venture capitalist are unlikely but potential buyers.

Access to an effective data base is key in determining buyer targets for your company.

“What type of transaction structure can we expect?”• Asset purchase vs. Stock purchase.

• Purchase price allocation.

• Not all cash at closing:• Understand the “Balance Sheet Effect”

• Be flexible; consider financing part of the deal for the buyer:• Earn-out

• Promissory note

• “Deal money” vs. compensation for services rendered.

• Be prepared for a non-compete agreement.

“How do we get started on the process?”

This may well be the largest transaction of your life so:• Know what your business is worth by having a valuation performed.

• Assemble a team of trusted advisors:

• Brokers/Intermediaries

• Outside accountant/CPA

• Attorney who you can “control”

• Know what you want your role to be post-closing.

• Define any special requirements ahead of time:• Employees

• Building/equipment leases

• Tax Planning.

Questions??

Good luck!