Business owners wanting to initiate the sales of their business usually turn to a professional for advice at some step of the way. Exit planning in itself is a complex process and should have begun well before the business goes on the market, although experience shows this isn’t always the case.
The vendor’s aim is naturally to obtain the maximum price for the business when it is sold, and often this can only be achieved by a careful restructuring of the organization before the sale actually commences.
The valuation itself is affected by a large and diverse range of factors. Prevailing conditions in the marketplace must be identified, understood and related to the enterprise being sold. The person doing the valuing can’t rely exclusively on the vendor for a complete picture of the market as a whole and must instead find their own sources of information.
Then there are all the legal requirements – the contract of sale, the valuations of individual pieces of capital equipment, valuation of stock on hand, liabilities to pay out workers displaced by the sale, and so on. It’s not something that can be handled quickly, nor is it a simple task to complete correctly.
Once a client decides to sell a business it’s not always a good idea to tell the world immediately. There are many issues that require careful consideration so that the value of the business remains unaffected while the sale process is carried out.
A business that is known to be for sale raises suspicions among several important groups of people. Team members wonder about the security of their jobs and may well start looking around for new positions. Suppliers become concerned about getting paid for their latest invoices and can tighten credit terms, and competitors reach for their phones to contact every customer of the business they know about to offer them an “unbeatable deal” if they’ll change their source of supply.
Nothing spreads quicker than the news that a business is for sale, and it can become a real problem for the vendor and for the agent handling the sale transaction. It can certainly impact on a professional services provider trying to value the business at a fair price.
All professional advisors discussing the forthcoming sale with the vendor should take extreme care to keep the fact of the business being sold a secret. Information disclosed by the owner must be treated as highly confidential and not released unless the owner’s permission has been received and the advisor feels it can be made public without compromising any aspect of the sale process.
Experience has shown that the professional advisors are rarely the source of leaks about a business that’s coming onto the market. It’s too important for their own professional standing to put at risk their ability to keep things under wraps until the appropriate time. The problem usually originates with or close to the vendor.
Begin by stressing to the vendor that the name of the business should not be mentioned in the context of selling it. Instead, prepare an accurate summary of the key points about the business so that it conveys the most of the information a prospective purchaser would like to know without giving away enough to make a positive identification. This information can be used by business agents or brokers that become involved in the marketing process.
Next, make sure that any prospective buyer is asked to sign a confidentiality agreement before any further details of the business are revealed. The list of prospective buyers should be carefully checked so that direct competitors can be identified and won‘t benefit from some critical market knowledge.
The underlying aim of all this secrecy is to retain the value of the business as a going concern, and that includes both people and its position in the market. If word gets out too early that the business is for sale, its value can be materially affected and significantly reduced from the price it would otherwise have achieved.
Copyright 2004, RAN ONE Inc. All rights reserved. Reprinted with permission from www.ranone.com.
Chris’ combination of academic credentials, career experience and temperament ideally suit his calling as a business development advisor. Clients say he has a mind for business and a heart for service.