Working with an experienced lawyer and business broker can make a major difference when it comes to getting the most value for selling your business. Take the example of Holly Hunter, a successful financial planner in Portsmouth, NH. Her small business employed a few people and pulled in about $700,000 per year in revenue. As Holly got older, she wanted more from life than running her business. Once the Great Recession began in 2008, she was ready to sell it.
One of Holly’s trademarks was a high degree of personal attention to her clients. This became a problem when selling the business. Buyers were unsure whether Holly’s clients would stick around after the sale. Unfortunately, despite non-disclosure agreements, word got out that Holly was selling, and her clients started to jump ship. This dramatically reduced the value of her business.
Holly finally found a buyer and sold her business. But one of Holly’s most reliable and competent employees left the company. Because he was no longer bound by a noncompete clause, he took many of the company’s clients with him. This was devastating for the company’s revenues. The new owners had paid Holly the down payment, but most of the value of the sale was promised in future installments. With the business reeling from bad management and the loss of significant customers, Holly never received any payments beyond the first year after the sale.
It seems like Holly made every mistake in the book. If you are interested in selling your business, retain an attorney experienced in mergers and acquisitions to best ensure your business retains its value through the sale.
Here are four major issues that you can address to increase the value of your business before a sale.
Are You Too Involved Day-to-Day?
If you have been personally invested in helping your customers and clients, much of the goodwill that people have toward your business is based on your own personality. While this may be an asset when operating your business, it is a liability when selling.
Your customers and clients may be wary of dealing with someone new. Buyers know this and want to discount your business because of it. A savvy buyer knows he has to work hard to keep old customers and win new ones if the business is going to be profitable.
Consider ways to be less involved with the day-to-day operations of your business. Set up your business to function without you to increase its valuation in a sale.
Handle Legal Issues the Right Way
Many legal issues can be mismanaged when you run a business. If lack of proper compliance documentation is discovered during the sale, the buyer lowers the valuation of your business. If it takes place after the sale, revenues are reduced due to the added expenses of compliance. If you have arranged an installment plan for payment, this impacts the ability of your buyer to pay.
Other important legal issues not to be neglected include nondisclosure agreements and noncompete agreements. An experienced lawyer helps you handle these issues. You want an attorney with experience in mergers and acquisitions to make sure you cover all your bases during the sale.
Avoid Installment Plans
When you sell your business on an installment plan, you have no guarantee that you will receive payments. Try to get most of the value of the sale up front.
There are many things that can go wrong after the sale of your business. The new owners could mismanage the business and customers could flee to other businesses. The future success of your business under new ownership is not something on which you may rely.
Having an experienced business broker who represents you and not the buyer is a necessity. A broker makes sure the terms of the sale are in your best interests. An audit by an experienced attorney and accountant also best ensures there are no hidden problems that might emerge after the sale.
Don’t Wait Until It’s Too Late
You never know when you may need to sell your business. A health issue, changes in your marketplace, financial considerations, or increased competition may force you to consider selling. It is too late to ask about enhancing the value of your business when you need to sell it.
As a business owner, regularly ask about the value of your business and what it would be like to sell your business. Take steps to ensure your business has the best possible valuation in a sale. If an emergency arises and you need to sell, you will have done everything you can to get the best value for your business.
An attorney experienced in mergers and acquisition can periodically audit your business to make sure everything is in order. Your attorney makes recommendations to ensure your business is ready to sell when the time comes. With proper planning, you can make sure your best interests are protected in the case of a sale. Contact us to speak with an experienced lawyer who can help you prepare to sell your business.