Is Your Business a Platform or Bolt-On Candidate?

Private Equity Firms Account for a Substantial Amount of Action in the M&A Market

by Terry Stidham

Private equity groups are well known for acquiring large companies. Their deals, measuring in the hundreds of millions and even billions are regularly reported in the local and national business pages.

Less known is the fact private equity groups make a lot more acquisitions of companies with sales under $20 million than of companies with sales over $100 million. The Wall Street Journal seldom reports on PEG's acquisition of $1 or $2 million companies, but they are taking place quietly, on a regular basis. 

If you have a business for sale and are being courted by a private equity firm, it might be helpful to know they make two types of purchases: platform and add-on acquisitions.

Platform Acquisition:

A platform acquisition is going to be larger company within a particular industry for the private equity firm—essentially a foundational operation they will continue to develop through both organic growth and “add-on” or “bolt-on” acquisitions.

Add-On /Bolt-On Acquisition:

An add-on /bolt-on acquisition is when a private equity-backed company acquires another company as a "bolt on" to enhance the private equity-backed company's value.

Generally, for a private equity group to make a platform purchase, the acquisition target ha-s to be doing at least $10 million to $20 million in sales and at least $2 million in EBITDA.

When a private equity group makes an add-on purchase, on the other hand, it’s more of a strategic play because they already own at least one company in that industry. They add smaller companies to the platform in order to expedite top line and bottom line growth, making the company more profitable and more attractive to the next purchaser. 

By growing a company from a $2 million EBITDA to a $6 million EBITDA through both organic growth and acquisition, the private equity firm will typically get a significantly higher multiple for the entire entity than they paid for each company alone.

The M&A Source with support of Pepperdine University has begun tracking private equity platform and add-on purchases as part of its quarterly market pulse report.  In the third quarter of 2012, national members reported that private equity purchases were almost nonexistent until opportunities reached $5 million in value.

In that study, private equity dominated lower middle market purchases of $5 million and above, at 68 percent of deals closed.  Of those, nearly all were add-on acquisitions.

From a seller standpoint, this helps you understand that the private equity firm will be making a more strategic play for your business, rather than looking at it from a financial standpoint.  That impacts both positioning and value.

Also, if you are being purchased as a platform company, you can usually expect a longer transition time.  The private equity buyers will want you to stay around longer to transfer your knowledge and contacts to a new leader or in many cases to leave some equity in the deal and get a second bite at the apple four to five years down the road.  If you want to get out of the business sooner, you’ll have better chances as an add-on acquisition.

Reasons to Deal with Private Equity Buyers

• Higher Valuation
•  In the case of an add-on acquisition, PEGs can often pay more than other buyers, because an add-on acquisition is a synergistic acquisition. That is, by combining the add-on with their existing platform company(s), they can make 2 + 2 = 5. They can take advantage of synergies like economies of scale, market clout, and more to justify a higher valuation.
• PEGs virtually all have an aggressive growth strategy and that strategy typically involves -- add-on acquisitions. Their whole reason for being and their investor mandate is to acquire companies. Simply put, they are under pressure to do what they are in business to do--buy companies.

• Professional Deal Makers
• Because PEGs exist to buy companies, they are run by people who have a lot of acquisition experience. They know how to cut through a lot of the typical red tape and other time wasters involved in buying a business. They know what is and isn't important and how to avoid getting caught up in details that tend to slow a deal down. PEGs will often issue a letter of intent within days of first meeting with a seller.
• To private equity groups, buying companies is their business. Most buyers, including business owners pursuing a strategic acquisition, are not experts in the process and cannot devote full time to getting the deal done. This of course, stretches the time it takes to complete an acquisition. Private equity buyers, on the other hand, know the business buy/sell process and have the resources in place to consummate an acquisition deal. Running their business means making the acquisition.
• Committed Funds
• Private equity groups have committed funds for acquiring businesses. That is, investors have committed to provide funding up to a stated amount upon request. They have made their commitment in advance, in essence agreeing to accept the judgment of the PEG management for any acquisition it wants to make.
• Financing (without committed funds)
• Those groups that are not in the position of having pre-committed funds for acquisitions usually have very solid banking relationships. The banks know them and they know which banks will finance which kinds of acquisition deals. In a nutshell, a private equity acquisition deal, even one that needs bank financing, is likely to get done and get done much more quickly than a non-PEG acquisition.

Is your Business Right for Private Equity Acquisition?

Some companies are good candidates for sale to private equity and some are not. We at Target Search Group know the language of the Sellers and the Buyers and we know what Private Equity Groups look for.  Contact Us today to discuss your situation and to find out if your business meets their criteria.

Eye of the Beholder

How Your Company is Valued Depends on the Buyer                                  

Tom Gledhill wrote a blog last week that took a look at different valuation methods that buyers use. He points out that different types of acquirers use different valuation methods. Knowing what buyers are looking for gives sellers guidance on how to prepare and present a business when ready to go to market.

Based on analysis one have a good idea of what buyer type will be interested in acquiring their company. But how will that buyer type value the business? Before considering that, let’s review the valuation methodologies. The following is a brief overview of the valuation process. A complete understanding of business valuation would require a college course at the MBA level!

Tom says, "You should note that valuing a business is not an exact science. Even the best appraisers need to make subjective decisions in the valuation process. Consequently, business valuations for the same company can vary from appraiser to appraiser.

3 Basic Valuation Approaches

Market Approach - This works best in real estate because there are so few parameters to consider, and they are fairly consistent by region and price range. Businesses, on the other hand, have an almost infinite number of moving parts, so that comparable sales have to be used in conjunction with other valuation methods. The problem with employing this approach to private SMBs (Small and Medium sized Businesses) is that there’s not enough data to compare apples to apples. The market approach is probably better suited to valuing public companies where a large amount of data can be gleaned.

Income Approach - The income approach may be the most common for valuing private SMBs. As expected, it is based on company revenues and earnings. One method is called Multiple of Discretionary Earnings Method (SDE), where the SDE is defined as the net operating income plus adjustments plus the owner’s salary. The multiple is the inverse of the capitalization rate (cap rate) which is determined from an analysis of the company. Another method, the discounted cash flows (DCF), is based on reasonable projections (usually 5 years), and uses a discount rate (usually the cap rate plus rate of growth) to calculate the present value of the future cash flows.

Asset Approach - The asset approach is used when the fair market value replacement cost of assets represents most, if not all, of the value of the business. Obviously, it is based on the net tangible assets of the business, the machinery, equipment, furniture and fixtures, etc. It’s typically used when the business is no longer a going concern, or if the business has been losing money for the last few years.

Valuation Method Depends on Buyer Type·

Strategic Buyer -These are typically large private or public companies. By their very nature Strategic buyers are interested in how the acquisition of your company can benefit them in the future, and they are not so concerned about what your company has done in the past. Consequently, the most likely valuation method will be the discounted cash flow approach.

Sophisticated Financial Buyer - These buyers are typically small investment groups, private equity groups (PEGs), and small companies interested in growth by acquisition. These buyers are interested in what your company has done in the past, as well as opportunities for growth in the future. Consequently, the most likely valuation methods will be the various multiples of earnings (using EBIT and EBITDA) and the discounted cash flow approach.

Lifestyle Buyer - The lifestyle buyers are looking for an income, the ability to build equity, and the ability to service their debt from future cash flows. There is a saying about this buyer type they will buy the future but they will only pay for the past. If they are looking at three companies and everything else is equal except for the future prospects, they will buy the company that presents the best opportunities. Consequently, the valuation method of choice for this buyer type is the multiple of seller discretionary earnings. For larger companies still within this buyer type segment, they may use the multiple of EBITDA method. The only difference between the two is that seller discretionary earnings includes the owner's normalized salary and multiple of EBITDA does not.

Industry Buyer - don't confuse the industry buyer with the strategic buyer. The industry buyer is usually somebody in your niche that you know and considers your company inferior to his company. He's typically a bottom feeder and is trolling for a company that he can buy on the cheap for certain assets that your company may have. If he uses a valuation method it will be the asset approach - probably a book value method. If there's any possibility that this particular buyer may be interested in buying your company (total assets plus goodwill), then you must seek professional help to even the playing field.

The valuation methods used by the buyer types presented above are certainly not cast in stone. In any given situation any buyer type may use several different valuation methods. If a buyer uses several different valuation methods, each method is typically weighted and the valuation methods by buyer type suggested above usually receive a higher weighting."

Terry Stidham is the President and founder of Target Search Group. He is a Business Development Leader with extensive knowledge of the M&A process, combined with an in-depth understanding of the constantly changing global capital markets environment.  He has served as the head of entrepreneurial organizations as well as Fortune 500 companies.  He specializes with mid-market companies in a diverse array of industry sectors from service and manufacturing to technical and professional firms.

Mr. Stidham speaks the language of both the seller and the buyer having vast experience on both sides of the transaction. He has been directly involved in the execution and successful closing of hundreds of investment banking and corporate finance transactions.  Mr. Stidham has been instrumental in aiding thousands of business owners prepare their businesses for eventual sale by teaching them how to maximize efficiencies in operations leading to significant increased cash flow.

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One Chance to Get it Right

Most Business Owners go Through the Sale of a Business Only Once in a Lifetime

by Terry Stidham

Most successful entrepreneurs and business owners are great at negotiations and sales, but few are well equipped when it comes to selling their business. They easily become overwhelmed by the process, or else they make some very costly mistakes. While it’s somewhat daunting, selling a business can be managed with the right amount of preparation and guidance.
 

Selling a business can take 1500-2000 man hours and can easily be drawn out to over a year or longer.

Where to Begin - The first step is to ask yourself the question, “Why do you want to sell?” Before you get too far into the process, examine your reason for selling. You don’t want to make a decision that you will later regret. There are many reasons to sell a business, including:

• Retirement - one of the best reasons to sell a business
• Lack of Operating Capital - usually results in selling the business in a hurry and at a “discount”
• Lack of Growth Capital - can be a good reason if  business is profitable and you can still dictate sales terms
• Burnout - might want to consider taking some time away first (even a four- or five-day getaway trip) to think of ways to reduce stress before selling simply because you are “burned out
• Boredom - business is no longer a challenge or exciting
• Partnership Issues - irreconcilable differences
• Divorce - a very difficult situation if the husband and wife have been working together
• Declining Business - identify the reason why...new owner can possibly fix
• Too Many Assets Tied up in Business - might be ready to diversify risk
• Lack of Time for Family and Friends - "No one ever said on their deathbed, 'I wish I'd spent more time at the office'"
• Health - usually not a good time to sell, but all too often this is the reason
• Regulations - Business does not have the critical resources to manage

You should have a well-thought-out reason to sell your business. Selling for the wrong reason hurts the seller on multiple counts. For one, you are subject to receiving a below-market sale price for your business. Frequently this also means that your future options are limited by your age and financial position. So you might wind up selling without getting enough money to retire on and then need to seek employment where you’d be making a lot less than if you had simply kept the business! In any case, if you become convinced that your reason to sell is viable, the next key step is to get started.

The timing of a business sale is critical and planning ahead is key. Too many business owners fail to plan for the day when they will want or have to  to sell.

Why Buyers Buy

Think like a buyer once you have decided to sell your business. In so doing, you will take steps to make your business more attractive to prospective suitors. From a financial perspective, the buyer will be looking for three key results on the other side of the purchase.

• Cash Flow
• ROI
• Market Penetration/Expansion

7 Categories of Buyers

1. Competitors/suppliers/customers
2. Individual Investors
3. Investment Groups
4. Public Companies
5. Foreign Buyers
6. Employees
7. Family Members

All buyer types will focus on  return on investment (ROI). In simple terms, the ROI is calculated by dividing the net annual return by the dollars invested. But this calculation is anything but simple when it comes to the sale of a business. The buyer wants the highest ROI (implying a low purchase price), while the seller wants to maximize the sales price.         

    

Key Components of ROI: cost of money, degree of risk, greed, liquidity and future expectations of profits.

• Cost of Money -The cost of money has an inverse relationship with the denominator in ROI. As the cost of money rises, profits fall and earnings multiples also decline. Lower cost of money leads to higher profits and higher earnings multiples. Interest rates for the cost of money are set by government and market forces. A recent example of these forces at work has been U.S. Federal Reserve Chairman Alan Greenspan’s lowering of short-term interest rates an unprecedented 400 basis points from January to October 2001.
• Degree of Risk - The more risk perceived by the buyer, the higher the expected return will be. If your revenue and earnings have been erratic in recent years, the buyer may perceive the purchase of your business to be a higher risk than it would be to buy one with stable sales and profits. If so, he will demand a higher return (which means a lower price).
• Greed  - Pure greed may motivate the buyer to try to drive the price down.
• Liquidity - The easier it is to convert an investment into cash, the lower the expected ROI and the higher the earnings multiple. In other words, a potential buyer is going to expect a much higher return buying your business than he could get putting the same amount of money into Treasury Bonds.
• Future Expectations of Growth and Profit — The buyer will be more likely to pay a higher multiple of earnings for a company that has a believable forecast for growth in the future.

Calculating Value

Earnings Multiple x Earnings before Interest Depreciation Taxes and Amortization (EBIDTA) = Business Value is the most common method for calculating value.
Rules of thumb are valuation methods that should be used as guidelines only. Valuations vary greatly from business to business. The true value of a business lies in the future as seen by the buyer.         

Book Value of a business is computed by adding retained earnings, paid in capital, common stock and shareholder loans. However, book value multiples are rarely used in computing business sale calculations, because the buyer will be dependent on the earnings capacity of the business to earn a living, pay back debt and generate an acceptable return on investment.

One  will not be able to compute the potential sales value of a business just from reading this article. Depending on many factors (business age, location, market potential, financial trends, potential financial adjustments, gross margin level relative to the recognition and identification industry, and condition of business assets, to name a few), the earnings multiple could vary widely.

There are a number of different financial earnings measurements that can be used to value a business. The five most commonly used are:

• Shareholder Discretionary Earnings
• Adjusted Earnings before Interest and Taxes (EBIT)
• Net Profit Before Tax
• Net Profit After Tax
• Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA)

Earnings multiples are generally established as the result of a transaction. They shouldn't be used to drive a transaction, because there are so many extraneous factors that affect the value.

            

Importance Of Recasting

The historical financial statements alone seldom portray the true financial picture of a business. It is virtually impossible to value a privately held company without careful analysis and recasting to determine the true level of profits.

Recasting is the process of adjusting the out “extra” expenses that are typically run through a closely held business. These expenses are designed to reduce the tax liability of the owner, but they understate the earnings power of the business. It is up to the seller to provide to potential buyers the detail on these expenses.

Here is an example of some of these expenses. The income statement of an engraving business shows a pre-tax net profit of $100,000 for a given year. However, included in the expenses are the following:

• A $30,000 salary for a family member who works part time and could be replaced by a part-time employee earning $10,000 per year
• $15,000 per year for the owner’s leased vehicle
• $30,000 in overly conservative inventory write-down        
• $8,000 per year in country club dues

This could have a substantial impact on the potential sales price of the business. There are many expenses that can be adjusted out of the recast income statement to maximize the reported earning power of a business. Some of the most common are:

• Excessive owner compensation
• Family compensation to spouse, siblings or children
• Owner expenses such as vehicles • Owner perks such as club dues and travel
• Accelerated depreciation or amortization
• Use of nonconforming accounting principles
• Conservative inventory write-downs         
• Conservative bad debt write-offs
• Unusual expenses such as legal expenses associated with a lawsuit        
• Excessive maintenance that appears in one year
• New product or division start-up costs
• Capital items expensed (such as a new computer system) that could be depreciated        
• “Toys” such as boats, airplanes and hunting camps        
• Charitable contributions

Deal Structure

The structure of the deal is often more important than the actual sales price of a business. For instance, if it is important for you to cash all the way out now, you might take $1,000,000 less for a cash offer rather than take another offer that requires owner financing. In fact, there are numerous ways for you to be paid in the sale of your business:

• Cash — The most certain way to collect the entire sales price, but has immediate tax consequences.
• Secured notes — Seller is paid over time out of the cash flow of the business and has the right to foreclose as a secondary repayment source if the buyer defaults.
• Unsecured notes — Riskier than secured because the claim is unsecured; limited secondary repayment source if the buyer default
• Shares in purchasing company — Typically only included as part of the package when selling to a publicly traded company
• Consulting agreement — Seller required to stay involved for a fairly short period of time (usually from six months to two years) in exchange for part of the purchase price.
• Employment contract — Seller required to stay involved on a longer-term basis (usually three to five years) to help with transition to new owner.
• Lease on assets retained by seller — Most common with real estate or equipment; if you agree to this, you should require the buyer to sign a long-term lease (five years or more).
• Non-compete agreement — Seller receives payments over a period of time (usually three to five years) in consideration for agreeing not to open up a competing shop down the street.
• Royalty program — Seller receives part of sales price based on future sales generated by the business.
• Earnout — Seller receives part of sales price based on future earnings generated by the business; can be problematic if profits decline after the sale.
• Selling shares vs. selling assets — Buyer purchases the shares of the business directly from the owner(s) of the stock. While some businesses are sold on an all-cash basis, most sales include seller financing in the form of a secured or unsecured promissory note or some other form of future payout to the seller (such as a consulting agreement and a non-compete agreement). This can prove beneficial to the seller from a tax-planning standpoint. However, the seller becomes a creditor and takes some risk that the business will continue to perform well enough to generate sufficient cash flow to meet future obligations to all creditors.

Don’t Fail To Plan

“Business owners never plan to fail, but they do sometimes fail to plan, giving the buyer an added advantage. Be prepared for a process that will require a great deal of time and effort that should pay off in maximizing the sales price of your business in the long run.

Feel free to contact me if you have any question about your next steps or need any recommendations for additional help.

Top 10 Reasons Why Most Small to Medium Sized Businesses Don't Sell

Business Owners Can be Their Worst Enemy in Selling Their Business

by Terry Stidham

 Statistics show that less than 28% of businesses sell when they are marketed for sale. This means that more than 70% of businesses aren't sold. A survey of merger and acquisition (M&A) advisors and business brokers showed some very interesting insights. The advisors and brokers were asked to identify top issues that were problematic in the ability of a business to sell successfully. The top response was seller valuation expectations; 69% of the advisors and brokers indicated this issue as being the most problematic in selling a business.

 

Top 10 Reasons Why Many Businesses Don't Sell or Realize Fair Market Value (FMV) * 
1.    Unrealistic expectation as to value of business
2.    Legacy issues 
3.    Business is too dependent upon the owner who is unwilling to transition
4.    Customer concentration
5.    Outlook for future growth is bleak
6.    Declining revenues due to owner’s age or enthusiasm for the business
7.    No exit or succession planning
8.    Numerous financial rewards and perks of the businesses not added back into EBIDTA
9.    Uneducated seller especially on the due diligence process by the buyer and their advisor
10.  Lack of representation to aid in the sale of what is most likely the sellers largest asset

Without properly preparing the business for sale and arming oneself with a proven mergers and acquisitions process, there will be a huge business valuation gap between what the business seller expects to receive and what a reasonable buyer sees as fair market price. Selling a business takes preparation and the use of a proven process.

For owners of B2B businesses and larger businesses, your better buyers will most likely not be an individual, but rather a corporation or a private equity group. If the potential buyer has revenues up to $100 million, the mergers and acquisitions contact is usually the president. If the company is larger, the contact is typically the head of strategy, business development or merger and acquisition services. The first task is to recognize that reaching these corporate buyers is a very difficult and a labor intensive process. In these situations, it is wise to enlist the services of a merger & acquisition advisory firm that specializes in reaching these targeted buyers.

In summary:
I cannot stress enough that there needs to be proper preparation of a business for sale. The process to properly prepare a business for sale is not very costly and it does not have to take much time, but the results will bring about realistic expectations as to terms and value along with an increased likelihood of a successful sale. 

* Fair Market Value (FMV)

Under a section of the Internal Revenue Code, this is defined as: “…the price at which the property will change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having a reasonable knowledge or relevant facts.”

In 1959 the IRS issued a revenue ruling that identified specific factors that can influence fair market value. They include the nature of the business, the economic outlook, book value, earnings, dividends, goodwill and recent prices paid for similar businesses.

About Terry Stidham

Terry Stidham is the founder and principal of Target Search Group. He is a B2B Business Development Leader with extensive knowledge of the M&A process, combined with an in-depth understanding of the constantly changing global capital markets environment.  He has served as the head of entrepreneurial organizations as well as Fortune 500 companies.  He specializes with mid-market companies in a diverse array of industry sectors from service and manufacturing to technical and professional firms.

Mr. Stidham speaks the language of both the seller and the buyer having vast experience on both sides of the transaction. He has been directly involved in the execution and successful closing of hundreds of investment banking and corporate finance transactions.  Mr. Stidham has been instrumental in aiding thousands of business owners prepare their businesses for eventual sale by teaching them how to maximize efficiencies in operations leading to significant increased cash flow.

Eight Tips for Selling a Business

by Terry Stidham

1. Have a Realistic Expectation of Value:  

Many merger and acquisition advisors or brokers just can't bring themselves to tell their clients that their business is overpriced. Don't shoot your M&A advisor for valuing your business realistically and don't choose an advisor on the basis of which one values your business at the highest price just so that they can get a listing. The price (valuation) of your business needs to be realistic. The best way to accomplish this is to have your business valued by a third party valuation expert knowledgeable in the market forces that shape the business valuation. Businesses that use a third party business valuation are much more likely to sell because they have a realistic idea what the business is worth. Historically those who do not use an advisor combined with a third party business valuation service have less than a 20% chance of selling a business at all.

 

Having unrealistic expectations of value causes the business to take a longer time to sell or it may never sell at all. Additionally, a business that stays on the market for more than 18 months has an increased chance that employees, competitors, clients and other parties will learn that the business is on the blocks. Such information in the wrong hands could devastate the health of the business.  Furthermore, a business listed for sale for too long is often viewed by buyers as shopworn merchandise by the time if finally sells if it sells at all. Nothing raises the doubts of a prospective buyer more than to find out you've been trying to sell your business for a long time (18 months or longer).

 

Prior to marketing the business for sale have a professional business valuation performed, a credible and defensible business valuation will greatly solidify a true market value of a business. Depending on the type of a business being valued and the detail and length of a valuation the price can be anywhere from $2,000 to $8,500. The money spent on a good business valuation will more than pay for itself in the end.

 

2. Fixtures, Equipment & Facility:
You know what they say about first impressions. Buyers expect that all the equipment be routinely serviced and in good working condition. Prepare detailed list of equipment with model numbers and serial numbers, buyers may also want to have a third party inspections as well a formal valuation of the equipment and fixtures. Businesses with clean financials, good records, clean facility and premises and good and up to date equipment will receive good consideration by buyers.  Most buyers will likely deduct significant amount of deduction from the asking price if one or several areas of the business is not presentable or posse's short comings.

3. Have A Good Reason To Exit & Sell A Business: 

Buyers are always concerned about the reason for the sale of a business. They are afraid you may be selling a business because of a declining industry, the effects of globalization, competitor dominance or some undisclosed fact that may negatively effect and hurt the business in future years. Buyers want to hear a valid and logical reason for the sale. They also want to know that you can let go of the business at a fair price. Without a good reason for a sale, business buyers may assume the worst and either offer you a lower price (valuation) or just walk away.

 

4. Form An Advisory Team: 

To sell a business successfully you need to have the right group of experts. Start by searching for the services of a credible M&A advisor followed by an attorney with merger and acquisition transaction experience.  Your accountant will also need to be involved in some aspects of the business sale. Your merger and acquisition advisor will play the most critical role in the sale of your business therefore, they need to be qualified and experienced with mergers and acquisitions services, exit planning, business valuation and many other matters so you can achieve a predictable and successful outcome in the sale of your business.  Today, selling a business is so specialized it becomes imperative to engage the services of an advisor or investment banker. The best attorney or accountant is no substitute for a specialized and knowledgeable advisor who is experienced in all areas of selling businesses including business valuation, tax matters, deal structuring, problem solving and creative solutions.
 

5. Prepare a Solid Marketing Package (also known as an Offering Memorandum): 

A good and proper marketing package to sell a business is absolutely critical. Additionally, being prepared to answer questions during the buyers due diligence process takes extensive preparation. Anticipating the buyers due diligence, its best to prepare a detailed offering memorandum package to present to buyers when marketing your business for sale. If you have any items that you must have or are not willing to negotiate on then this would be the ideal time to declare it. 

 

6. Target Buyer Prospects:

After you have performed a thorough review and due diligence and prepared an offering memorandum you are ready to sell your business and look for buyers. You must educate yourself about the types of buyers that exist in the market place. After studying buyers you will have a better idea which buyer to seek out for your business:  a financial buyer, a corporate buyer, a private buyer or a strategic buyer. To assure that the buyer is qualified to buy and operate your business, you must learn how to carefully screen and qualify the buyer. Your advisor can set-up a process to target and qualify these prospects. Desire to buy is not proof of a buyer's ability to buy and operate a business successfully. Be very careful in the review and qualification of buyers. 

 

7. Negotiate Professionally: 

When you identify an interested and qualified buyer prospect, plan your negotiation strategy carefully. You and the advisor should carefully strategize on all of the negotiation points.  Give in slowly and carefully and always ask for a concession point in exchange from the buyer and his team of advisors. Have clear goals in mind to sell the business and do not get hung up on technicalities otherwise you will win the battle but lose the war. Don't get bogged down in disputes or become emotionally involved with the buyer. Don't allow your ego and pride to distract you from satisfying your underlying goal to sell your business. You do not need to become friends with the buyer, but understanding their circumstances and goals will help you negotiate better. Focus the negotiation on things that are common to you and the buyer. Spend time brainstorming numerous options with your advisor and you will likely come up with many solutions before deciding what to do about any particular problem. Begin by negotiating the easier points and then move to resolving the more difficult points.

 

8. Wrap-it-Up Quickly: 

Even the best buyer prospects can change their minds overnight. After the buyer prospect makes a commitment to buy your business, get an offer to purchase in writing and get a good-sized, non-refundable earnest money deposit. After the offer to purchase agreement is signed begin to negotiate the finer points and begin the process of drafting a definitive sales agreement along with all of the other closing documents and prepare to close on the business as soon as possible. Your business isn't sold until the money is in the bank.

 

Contact me today to discuss your exit strategies.

About the author:
Terry Stidham is the founder and principal of Target Search Group. He is a B2B Business Development Leader with extensive knowledge of the M&A process, combined with an in-depth understanding of the constantly changing global capital markets environment.  He has served as the head of entrepreneurial organizations as well as Fortune 500 companies.  He specializes with mid-market companies in a diverse array of industry sectors from service and manufacturing to technical and professional firms. 

Mr. Stidham speaks the language of both the seller and the buyer having vast experience on both sides of the transaction. He has been directly involved in the execution and successful closing of hundreds of investment banking and corporate finance transactions.  Mr. Stidham has been instrumental in aiding thousands of business owners prepare their businesses for eventual sale by teaching them how to maximize efficiencies in operations leading to significant increased cash flow.