By NOELLE KNOX, AP Business Writer NEW YORK (AP) PrivateEquityCentral.net / HedgeFund.net / Alternative Universe
“If your business isn’t a hot Internet company, you’ll probably have a hard time selling it through a public stock offering. You might have more luck selling to another company or a private equity fund in the current market”, said Paul Schaye, a partner at Chestnut Hill Partners, a merger acquisition specialist in New York. Ideally, you should start planning years in advance for the sale of your company. This will give you time to adjust your accounting practices to show a three- to five-year track record of maximum profitability.
That may be a big switch for many entrepreneurs who operate their companies to minimize their tax liability. That practice might save on taxes, but it usually minimizes the value of a business as well.
“You need to run your company like a public company,” Schaye said. “That means getting your uncle or spouse off the payroll and any other personal expenses.”
You may decide not to sell the entire business, and instead sell only a stake in the company. But whatever you decide, be prepared to justify your reason.
“After the buyer asks, ‘How much?’ the next question is ‘Why is the seller selling?’”, Schaye said.
Once you start the process, the final contract may still be a year away. So, be patient, financially flexible, and keep your equipment and inventory in good working order.
Once you’ve decided to sell, the next step is to hire professional advisers. These experts not only can help reduce your emotional turmoil, but also steer you through the process.
For small businesses, such as a laundromat or dry cleaning store, you will probably want to hire a business broker. For a mid-size company, with sales of $150 million, a merger and acquisition specialist is probably what you need; a good specialist will have a proprietary data base of potential buyers for most companies.
An experienced intermediary can provide a number of time-and-money saving services, including pricing the company, setting the financial terms and conditions, preparing a marketing presentation, screening potential buyers and assisting in negotiations.
In addition, “You have to have a fantastic (corporate finance) lawyer and you have to have a fantastic chief financial officer that can work with that attorney, because there are a lot of decisions you have to make as a seller,” said Dick Blaudow, president, chief executive and chairman of Advanced Technology Services Inc., which provides industrial services, including electrical repairs and computer services.
Blaudow sold 60 percent of his Peoria, Ill.-business to a venture capital group in 1998. Looking back, he said, “I would have done an awful lot more research on the people I sold to.”
“I found out later that my vision did not really match their vision and we found ourselves bumping heads along the way.”
Since the buyer will try to purchase your company at the lowest price, you have to watch every word in every draft of the sales contract.
One final tip: be prepared for the separation anxiety.
“It is an emotional nightmare for most entrepreneurs or founders,” Blaudow said. “One day, I would be eager to get the deal done. The next day I was ready to walk away.”