How to Sell Your Business, page 8

Valuing Technology, continued

Often, the leading metric is replacement cost. In other words, if it would cost me a million dollars to create a piece of software, and I can buy the rights to it from you for $100,000, then it is a good deal for me. Note, however, that to effectively create good value at this kind of asset sale you need to be able to demonstrate that best practices were followed in the process of software development. Full and complete documentation and quality control is a must. You may also need to be able to provide access to some of the engineers involved in the development process. Sharing some of the proceeds of the sale with these engineers may help motivate them (see Keeping the Team Together later in this article).

Dressing a Business For Sale

Repeat after me: presentation does count. No one who has ever seen a house attractively “staged” by a top professional real estate agent can doubt the truth of this applied to residential real estate. It is even truer when applied to selling a business, but covers more ground (and cannot override the necessity of a sale making financial or strategic sense).

It makes sense to dress a business for sale well in advance of actually starting the sales process. When you think about the areas need you’ll need to clean up, think details as well as the big picture.

Get the office organized and clean. Recast the financials. Create and polish presentation materials. Make sure all employees are under contract. Try to make sure that there are no legal issues outstanding. Take into your confidence key personnel who may be necessary to make the sale happen, and make sure that they are motivated to support the sale.

Try to settle any lawsuits that may be outstanding. These are imponderables that are difficult to evaluate—and may sink a deal.

Arrange a separate communication channel that will disrupt normal business flow as little as possible to handle the sale. For example, you may want to set up a private fax machine in your office. Business sales involve the transmission of a great deal of confidential data such as employment contracts, salaries, and much more.

Business Plans and Offering Memorandum

In effect, successful entrepreneurs have a strategic Business Plan in their head. This plan is a roadmap for how they plan to grow the business. A written Business Plan presents this strategy at a given point in time, and is an extremely important document. (Unlike roadmaps that are in an owner’s head, a written plan can be examined, disputed and validated.)

Offering Memorandums are somewhat more formal documents than Business Plans, used when a larger business for sale. In addition to the elements contained in a Business Plan, an Offering Memorandum sets forth the conditions of the sale. An investment banker normally prepares it, with the company Business Plan as its nucleus (see Working with Investment Bankers later in this article for more details).

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