Selling Your Business Once the Economy Recovers? Things to Consider Now.

Even if a sale is not likely until the economy recovers, demands on you as the owner will be more manageable if you have prepared your business for sale long before you receive the first inquiry from a potential buyer.
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If you want to sell your business after the economy recovers, the first thing you should do is step back for a moment and consider how indispensable you are to the business. If you take a week's vacation, does it take you a month to get the company back on track once you return? Are you the primary contact for your company's most significant accounts?

If the answer to either of these questions is "yes," then you are in a difficult position. Buyers, especially financial buyers, generally prefer acquisition targets without significant "key man" risks.

Start now to wean the company from you by developing a plan to delegate authority to other individuals and automate company operations. If you don't, you will likely find yourself saddled with a burdensome employment or consulting agreement after the sale is complete in order to mitigate the buyer's perception that your departure would lead to the company's imminent demise.

In a similar vein, does your bottom line reflect your company's true profitability? Put another way, once your potential buyer begins its due diligence, will it be required to restate your financial statements in order to get a true picture of the company's cash flow, balance sheet and net income?

Many entrepreneurs find it difficult to separate their personal financial situation from their company's. Although it may be tempting to run personal expenses through the company's books in order to obtain expense deductions, this practice often clouds the true performance of the company and can limit your return on the back end once you are ready to sell.

If you have not done so already, adopt tax strategies for your company that are transparent and above all, legal, and that won't require your buyer to do back flips in order to get a true understanding of the business's financial position and operations results.

Once you've got your relationship with the business under control, you should next think carefully about your key employees. Are they properly incentivized to stay around once the company is sold? Would it help to lock some of them into long-term employment arrangements if they are key contributors to the value of the business?

On the other hand, do any employees have change-of-control or "golden parachute" agreements that will burden the business or which the buyer will insist be bought out at or prior to closing? It is often best to deal with these types of issues before the rumors of a sale start circulating among employees.

A final consideration relates to the company's facilities. Does your company own the real estate on which its facilities are located? If so, you may want to consider spinning off the real estate to a separate company owned by you (as opposed to being owned by the operating company). Buyers often do not want the real estate associated with an operating business unless the property has some strategic value to the business.

As such, much time and effort is often spent detaching the real estate from the operating business as part of the acquisition transaction. This process can be tedious and time consuming as it requires new title insurance commitments, appraisals, or assignment or renegotiation of financing arrangements.

If your business is a corporation, there are also very good tax reasons to transfer ownership to a non-corporate entity. Finally, the real estate component of the transaction can also be another source of income for the owners through the negotiation of a valuable long-term lease of the facility to the buyer.

Many economists and dealmakers are cautiously optimistic about the future. Even if a sale is not likely until the economy fully recovers, the time demands on you as the owner will be much more manageable if you have properly prepared your business for sale long before you receive the first inquiry from a potential buyer.

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