GREAT 61 IDEA: Sell Your Business at the Right Time and Price
Business broker Colin Gabriel has this advice for entrepreneurs: hire someone to audit your financial statements and constantly update your business plan. Why? You never know when a buyer will show up.
“The best buyers are the ones who come knocking on your door because they have an interest in your company,” said Gabriel, founder of Gwent Inc. in San Diego, California.
In today's global economy, there are no boundaries for buyers. (See Great Idea #39 about foreign investment visas.) For example, Gabriel said he once brokered the sale of a New Jersey firm to a company in France that he found on the Internet. It gets even better: it didn't matter to the French buyer that the New Jersey–based company was making all its electronic products in a Taiwanese-owned factory.
Savvy sellers know they will be put under a microscope during a transaction, but they turn the tables on the buyer by learning as much as they can about them. Doing your homework may reveal what Gabriel calls “nasty surprises.” But it's better to know about any problems, so you can call off the deal.
Don't be afraid to ask the prospective buyer for a current balance sheet and details about the financing. Gabriel said many deals are highly leveraged, and the new owner may be planning to saddle your company with debt the minute the deal closes.
“With a leveraged buyout, someone will borrow 70 to 80 percent of the purchase price and load the company with debt. The astute seller has to decide in advance whether to engage in a deal like that,” said Gabriel.
- Place a realistic value on your business.
- Work with a business appraiser to determine the value.
- Be patient. Art is auctioned; houses are sold slowly. Most businesses are like houses.
- Estimate future profits and document these expectations.
- Invest in audited financial statements.
- Understand how the financing will work.
- Disclose everything; hiding problems can kill the deal.
- Be vigilant until the contract is signed.
- Listen to your advisers, but don't give up the helm.
- Sell the assets or sell the shares. It's usually better to sell shares rather than assets. If you sell the assets, you may face double taxation.
Your buyer may also ask you to provide some of the financing by taking back a promissory note. If you don't want to end up owning the company again, refuse to finance the deal. (However, we sold SBTV.com on an installment basis. The buyers paid us on time, every month for about two years and never missed a payment.)