Timing the Sale

Today, the market world offers the best environment for business sales that we’ve experienced in many years. More small business owners are choosing to list their companies for sale as they've seen the economy improved. It is important to know that selling a business requires planning and preparation; better to start well in advance because sooner or later, it will be time to sell your business. Of course, business owners will always aim for a high price tag, but what many of them don't understand is that the value of their business depends in large part on timing; and given that a lot of things about business are constantly changing, timing a sale is no simple task.
 
Here are some questions answered by professionals that will give you ideas as to when the best time is to sell your business:

When should I start developing an exit strategy for my business?

 

Brian Bornino - CPA, Certified Business Appraiser

Brian Bornino_0.jpegBrian D. Bornino, CPA/ABV, CFA, CBA is a nationally recognized thought leader in the business valuation and ESOP consulting industries.  He has led, managed, or completed nearly 2,500 valuation engagements during his career, with clients ranging from over $1 billion to under $1 million.  He has been involved with over 500 ESOP-related engagements, including ESOP valuations, transactions, and implementation consulting.  Mr. Bornino is a frequent speaker and author on valuation-, ESOP-, and transaction advisory-related topics. 

"It is never too soon to being developing an exit strategy." Generally speaking, the more time you plan, the better result you will achieve.  A good rule of thumb would to begin developing and planning for an exit strategy no less than 3 to 5 years prior to your desired exit.  This will allow you ample time to prepare your business for sale and maximize the value of your company.

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I am selling my business, at what point do you recommend hiring an attorney and what role do they play in the process?

 

Chris Cali - Attorney

Chris Cali 5.jpg

Chris’s clients include small and mid-sized businesses and their principals, condominium associations, chambers of commerce, and real estate developers and investors.

"A business owner should get their attorney involved right away when contemplating a business sale.  A key reality in legal services is that it is less expensive for an attorney to prevent a problem than it is to solve one."

The main role of the seller’s attorney is to help negotiate the legal terms of the contract between the parties and to help execute the transaction.   By getting an attorney involved from the beginning, the attorney can look for and help to solve potential problems before they cause an issue which could harm negotiations.  An attorney can also help advise a seller on certain matters that should or should not be agreed to in negotiations.  If a seller agrees to something problematic before the attorney gets involved, it could be impossible, and definitely expensive, to fix it.  
 
Additionally, the seller’s attorney will be in charge of preparing the items needed for closing (closing documents, schedules, certifications, lien releases, etc.)  By getting the attorney involved early in the process, it will give him plenty of time to deal with issues that need to be resolved to consummate the transaction.  For example, if a selling entity was administratively dissolved because the seller hasn’t filed annual reports in two years; it is better the attorney reinstate the corporation right away rather than try to expedite the reinstatement a week or two before closing and potentially delay the sale.

How will I know when it is a good time to sell my business?

 

Rick Adamy - CPA, Business Appraiser

Rick Adamy 1.jpgRick Adamy is a CPA and the founder of Adamy Valuation Advisors. With over 25 years’ experience in valuations, Rick has advised several hundred clients regarding ESOPs, succession planning, merger/acquisition and other valuation areas. Rick also provides a variety of litigation support services, including testifying in various courts as an expert witness on business valuation and economic damages. Rick has spoken on business valuation to various CPA groups, law firms, banks and industry trade organizations. He has been a frequent speaker at MACPA conferences on business valuation topics. Rick formerly was an adjunct instructor of accounting at Aquinas College.

"If your primary goal is simply to get the best price, watch two things: market multiples and what’s going on in your industry.  Published data on market multiples show history and current levels." The market is strong right now, recovering from the low point following the recession. Developments in your industry will also influence price. Some industries grow hot and cold and don’t necessarily follow overall market pricing trends. For example, one of the hottest industries right now is raw food processing.
 
All of this assumes your business is actually positioned to sell. There is a long list of readiness issues such as successor management, customer concentration, internal systems and controls, and facilities condition and capacity, to name a few. How will buyers view your company? If you’re not sure of the answer, it’s probably not time to sell.

When should I start developing an exit strategy for my business?

 

Elliott Chester - CPA, Certified Valuation Analyst

Elliott 1.jpgElliott works for Frost, pllc, certified public accountants which has offices in Raleigh, NC, Little Rock, Ark., and Phoenix, Arizona. Since 1974, the relationships Frost, pllc has developed and maintained over the years helped us become a leading independent accounting firm in the U.S. But these relationships would be meaningless (and would eventually disappear) without a daily commitment by the Frost team to provide the best solutions at the greatest value. We love our clients and they love what we do for them.

"You should develop an exit strategy when you buy or start a business." A good plan of any kind should always consider the final stages of that plan when charting the initial stages. The businesses I have seen without an exit plan have either lingered in limbo without buyers, or have been litigated. The strategy does not have to be complex or definite for that matter. Getting one down on paper and modifying it as you go is better than nothing at all.

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I am selling my business, at what point do you recommend hiring an attorney and what role do they play in the process?

photo 2.jpgRichard is a lifelong North Carolinian and a Partner at the firm’s New Bern office.  Richard focuses on general civil/real estate litigation, homeowners association law and a broad spectrum of corporate and transactional law. Richard has extensive experience in all aspects of both residential and commercial real estate sales and acquisitions, leases and various other real property transactions, which experience serves him well as advocate and counselor to his homeowner association and real estate litigation clients.

"You should hire an attorney prior to executing an agreement to sell the business, for sure." This does not always happen.  As the seller’s attorney, I would want to ensure the seller is getting an adequate price for his/her business and ensure the purchase is structured properly (i.e. asset purchase versus purchase of shares/membership interests).  The attorney acts as a facilitator, obtaining information the seller needs from various sources and providing information to the seller’s other professional servicers (CPAs especially), as well as the point person to deal with the buyer and their team.  At a minimum, the attorney needs to prepare purchase and sale documents and assist the seller in making representations and warranties. If the client wishes, the attorney will be intimately involved in all phases of the sale and will be at the closing table when the paperwork is finalized and the money is dispersed.

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When should I plan to begin the succession planning process?

 

Michael Blake - Business Appraiser

Michael Blake 1_0.jpg

Michael Blake is Director of Valuation Services at Habif, Arogeti & Wynne, LLP.  He has 15 years of valuation experience, with particular expertise in mergers & acquisitions, dispute resolution, intellectual property matters, risk analysis, and exotic securities and derivatives valuation. Michael’s professional background is transaction focused, with long tenures in the venture capital and investment banking industries.  Michael has considerable experience working with companies in the U.S. and abroad, most notably Russia, Israel, Belarus, and Ukraine.
 
"The answer as to when to begin the succession planning process varies case to case, but one answer that fits everyone is “long before you ever think you’ll need it.” I, and most experts I have heard, recommend at least 5 years before the planned exit. Even 10 years in advance isn’t necessarily too far ahead.

I am selling my business, at what point do you recommend hiring an attorney and what role do they play in the process?

 

Rohrbachers Cron - Attorneys
Rohrbacher 2.PNGMr. Cron has practiced exclusively in the business and estate planning areas of law for the majority of his legal career. He received his undergraduate degree from St. Joseph’s College, a J.D. from the University of Toledo, and an LLM in taxation from Wayne State University. In 1974 Mr. Cron was licensed to practice law in the State of Ohio and in 1999, in the State of Florida. Mr. Cron is admitted to practice in the Supreme Court of Ohio, the United States Supreme Court, the United States Court of Appeals for the Sixth District, the United States District Court for the Northern District of Ohio.
 
"It is our recommendation that you consult an attorney early on in the process." In the beginning, the attorney’s time may not be significant as business terms, valuations, and other matters are determined.  However, it is our recommendation that an attorney be advised when the business owner is considering the sale of his or her company so that he or she can be advised concerning what to expect in the process. Further, an attorney can place the business owner in contact with other professionals who should be involved, such as appraisers and accountants, if the business owner does not already have those professionals engaged.
 
The attorney’s primary involvement begins when the seller has identified a potential purchaser with whom he wishes to make the first step towards the sale of the business. This period usually entails a time for review or preparation of a letter of intent, followed by the preparation of a purchase agreement, and the provision of due diligence and closing of the transaction. The attorney is integral in all of those phases of the transaction. Having an attorney will ensure a complete and clean sale of his business and will help avoid unanticipated issues and possible claims, such as those for breach of warranty or failure to disclose, down the road after the business has been sold.

I am preparing to sell my business and I would like to sell it in less than a year. Is this a realistic goal? Do you have statistics on how long most businesses take to sell?

 

Angela Sadang - Accredited Senior Appraiser

Angela Sadang 1_0.jpgAngela Sadang, CFA, ASA, is a Director in the Litigation and Corporate Financial Advisory Services Group at Marks Paneth LLP based in midtown Manhattan. Ms. Sadang specializes in business valuation and has more than 15 years of experience providing corporate financial consulting services and performing valuations. She serves both publicly traded and closely held companies in a wide range of industries that also involves various asset classes.

"The length of time to sell one’s business follows the law of supply and demand and depends on the industry and the economy and the demand for your kind of business and the products and/or services you offer." There are online sources as to the typical time it takes to sell a business in a specific industry and business brokers will be able to give you statistical data because they are involved with actual transactions in the marketplace.
 

Is there a right or wrong time to have my business appraised?

 

Brad Van Horn - Certified Business Appraiser, Certified Valuation Analyst

Brad Van Horn 1_0.jpg

In his 23 year career in the business valuation profession, Mr. Van Horn has been involved in over 3,000 valuation engagements covering a broad range of industry segments.  Mr. Van Horn has appraised privately-held companies involved with manufacturing, construction, distribution, financial services, professional services, retail, start-up technologies, and many other industries.
 
"While there is never a wrong time to have your business appraised, you should maintain an updated appraisal as part of your estate plan." Generally, you should have your business appraised or previous appraisals updated any time there is a significant change in your business or in the industry you participate – or at least every other year.
 

I am selling my business, at what point do you recommend hiring an attorney and what role do they play in the process?

 

Adam Gana - Attorney

Capture_0.JPGAdam Gana is the managing partner of Gana LLP. His practice focuses on all aspects of securities arbitration, complex commercial and business litigation, insurance litigation, employment law, class actions and appeals. As a seasoned arbitration and trial lawyer, Mr. Gana’s experience includes litigation in both State and Federal Courts as well as in various alternative dispute resolution venues. He has tried more than twenty cases to verdict before the state and federal trial and appellate courts, AAA, JAMS, NFA and FINRA.

"You should contact your attorney immediately once the decision to sell a business is made." The attorney can help navigate all the necessary paperwork to make sure the transaction is appropriately consummated.