How to Sell Your Business, page 3

Reasons for Selling, continued

You should make a firm commitment to sell before starting the sales process, and not use the sales process experimentally to decide whether you want to sell.

Try to form an objective opinion of whether your business is working and what it is worth. It makes sense to ask for unvarnished opinions from third-party experts such as accountants, brokers and consultants (see Understanding Valuation and Working with Intermediaries later in this barticle).

Keeping in mind what you think your business is objectively worth gives you the option of pursuing occasionally opportunistic offers for your business at too high a valuation. (You can’t know these valuations are too high—and worth pursuing—unless you know what it is worth.)

This all leads up to a forthright discussion of one leading but illegitimate motivation for selling a business: trying to sell a non-working business. This can take the (somewhat excusable) form of trying to get a new owner to rescue one from an untenable situation, or it can simply be larcenous. In either case, it is relatively unlikely to work: a buyer’s biggest fear is to be “stuck” by the business seller, and most aspects of your business will be scrutinized carefully long prior to closing. But it may waste a lot of peoples’ time.

Bearing in mind that a money losing business is probably worth nothing, and that if you assign an unrealistic valuation to your business it probably will not sell, there are, of course, legitimate reasons to sell a business. Here are a few:

• Retirement: the seller has created a successful and stable business, and wants to go on to the next challenge or to retire.

• Succession: the seller has no children interested or capable of running the business, and wants to insure business continuity (e.g., jobs for employees).

• Asset diversification: the seller has most of his net worth tied up in the company.

• Growth Capital: the business needs more capital to take it to the next level of success.

• Association with a large firm: for structural reasons and for further growth, the business needs to be integrated with a large company (perhaps one with international distribution or some other synergy).

It is important that you understand your motivation at the outset, since this will dictate what terms are most important to you. For example, if you are looking for a larger company as the acquirer for synergistic reasons, it is likely that you will stay on as a manager. In this case, the most important factor is your estimation of how you will like working for the acquirer. However, if you are looking to retire, the largest payout (with the least encumbrances) will probably appeal to you.

Continued next page

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