There are numerous reasons you might consider selling your business – it could be that retirement beckons, your business has reached its growth limit under current management or financial constraints, or an exit opportunity knocks. Whichever the case may be, before moving forward with a sale, it is important that you understand what your business is worth and consider the most effective way to market the business for sale.
If you are seriously considering a sale, a prudent first step is to dispassionately determine the value of your business. There a several ways to do this. You can rely on your specific industry experience along with the financial history of your business, take into account an offer received from a third party or a competitor, or engage an appraiser to prepare a report based on market conditions.
There are many guidelines and rules-of-thumb for valuing a business (although few absolute rules). You can use multiples of revenues or earnings, or a combination of the two. Do not expect an absolute uncontestable answer. Do proceed with caution as these are approximations and useful only to suggest what the market will bear. Additionally, do not overlook the value of intangible assets such as intellectual property, business methodologies and the goodwill that goes along with an established brand. In the end, arriving at a realistic price is key to drawing prospective buyers.
When it comes to marketing the business for sale, there are some important things to keep in mind. Doing the marketing yourself can be hazardous. It can disrupt ongoing client relationships should your clients learn that you are looking to exit the business. It can also create uncertainty for employees who, in turn, may seek other employment opportunities.
For these reasons, having your business marketed on a confidential basis by a broker or investment banker is usually the preferred method. It is recommended that you speak with an attorney prior to engaging a broker or investment banker. Why? Your first negotiation will likely be the terms of the agreement to market your business as set out in an engagement letter. Such letter will set forth the terms of your engagement, including whether the broker/banker will be your exclusive marketing agent, whether you will be charged a monthly fee, and what fee you will pay upon a successful sale. It is important to note that in many cases a fee will be requested upon sale even if the purchaser was not identified by your broker/banker. Remember, agreements are always negotiable. Talk over your goals and expectations with your attorney to ensure you are not surprised by the “small print” as you transact a sale.
There is likely to be no one more passionate about your business than you and no one who knows more about running that business than you. Yet, at such an important time, when you are ready to move on to your next venture, research, preparation and a qualified team working for you can speed and smooth the process.
As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice. For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.
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