How to Sell Your Business, page 13

Unlocking Hidden Assets, continued

For example, suppose you are actually engaged in two activities. Your business started out manufacturing a specialized kind of screw, and developed distribution channels for hardware products. You then discovered that it was more profitable to distribute many brands through the channel you created—but you’ve continued to manufacture the original product.

From an earnings standpoint, the original screw business just about breaks even—all the profits are in the distribution business. You could break the business into two, selling the distribution business based on its earnings for as much as if it had included the screw business. The screw business could be retained, sold, or liquidated.

If you have the opportunity to do a restructuring of this sort, it is best to do it as far in advance of a potential sale as possible.

One area that may particularly repay scrutiny is any real estate owned (or, in some cases, leased) by your business. There may be value that can be captured separately (in addition) to the business’s value. It also may be smart to structure real estate so that you retain ownership following a sale, and lease it back to the business. This is a good topic to discuss with your accountant and other appropriate expert advisers because complex tax issues may come into play.

Confidentiality

Confidentiality presents a dilemma to the business seller, and an issue that must be handled with a great deal of subtlety. On the one hand, if everything is kept totally confidential, including the fact that the business is for sale, then buyers will never learn about it, and the business will never sell. On the other hand, if it becomes known in your industry, and to your employees, that your business is for sale, your business prospects could be damaged.

The precise course that you must chart to navigate the horns of this dilemma depends upon the specifics of your situation. You will have to make some judgment calls. But whichever way you decide to go, it is an issue you should take seriously.

If it is widely known that your business is for sale, undoubtedly there will be a lot of “window shoppers.” This is a phenomenon like the people who go to real estate open houses with no intention of buying. Some of these window shoppers will be competitors out to learn your secrets.

At the least, some formalities should be observed during the sales process. Written materials, such as a Business Plan, should include a confidentiality notice. Potential buyers should sign a Confidentiality Agreement (also called a Non-Disclosure Agreement, or “NDA”) before sensitive information is discussed or disclosed.

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