January 30, 2024
I have an unsolicited offer for my business. Should I sell it?
By Michael McEntee
Is it a great offer? Potentially.
Selling is a once in a lifetime opportunity for most owners, and moving forward at the optimal time and at the best possible price is essential. As a crucial first step, the business owner will want to verify just how great this offer really is. At A. Neumann & Associates, we assure that our client has this information by immediately developing an independent, fair market valuation of the company.
However, in addition to determining the company’s fair value, several other important questions will also need to be answered: If this is a multi-generational business that supports several family members, how much does the business need to be worth in order for all of them to be taken care of and for what period of time? What are the tax consequences of a sale? If I do sell, what will I do with my time? Do I want to remain involved in the same or a lesser capacity? Is that even possible?
It is not unusual for a family business to have reached the third or fourth generation and along the way become extremely successful. At the same time, multiple generations often become involved in its success and reliant upon the income that it provides. If there are no upcoming family members interested or capable of continuing to manage the company and the current generation of owners are contemplating a sale, they will likely need specific input from their wealth management team. However, this will not involve determining the current value of the business, but rather determining what the sale proceeds will need to be in order to generate sufficient money to support the current generation of owners until a certain point in the future. If that figure will be generated by this offer, then a sale can conceivably take place. If not, then a minimum target price will have been established and current management can proceed to make necessary changes that will increase profitability until the desired business value is achieved.
While an original or single business owner does not have to be as concerned about supporting multiple other owners if a sale should take place, he or she does have to work with other outside professionals to prepare for the personal consequences of a sale. For instance, a CPA or tax attorney may be able to suggest strategies or structures that, if put in place now, can minimize future taxes that will be due upon a sale.
After spending a lifetime growing a business that has probably consumed far more time than the standard 40 hours per week, it is entirely possible that an owner has not managed to develop meaningful other interests away from running the business. Unless a seller wants to continue to work for a new owner in some capacity and if that is even possible, then serious consideration needs to be given to how the seller will cope with suddenly having substantial free time.
Assuming all of the previously mentioned questions have produced acceptable answers such that the business owner will be sufficiently compensated, will not be overly taxed, and is not concerned about finding meaningful and rewarding activities, then only two major questions remain: What is the current fair market value of my company? and Who can properly guide me through the business sale and transfer process?
During its twenty-year history, A. Neumann and Associates has valued and sold hundreds of client businesses. We approach every engagement understanding that confidentiality is our primary concern. Nothing positive results from employees, clients, or competitors even suspecting that a business is for sale. Therefore, no one, other than a few select potential buyers can ever have specific knowledge of an impending transaction.
We accomplish this through our rigorous pre-qualification process. Every potential buyer must sign our very strict Non-Disclosure Agreement. In addition, we require that they supply us with a current bank statement and their recent financials so that we can see clear evidence of adequate cash for the down payment and the financial strength necessary to qualify for the requisite lender financing. All of these documents must be in place before we release any specific information about our client’s business.
In a situation where the client has been approached and a level of interest has been expressed, it is quite logical to assume that the “offer” is contingent upon the potential buyer having access to all of the seller’s financial history, projected revenue and expenses, and even client lists during the due diligence process. This information should not be given to anyone without the previously mentioned pre-qualification steps having been completed. This is where the true value of an experienced Mergers and Acquisitions Advisor becomes readily apparent.
The seller needs to be able to rely on their M&A Advisor to handle the vetting of this and potentially other buyers while the client focuses on keeping their business running at peak efficiency during the months that the negotiations can take. From start to finish, the business transfer process usually takes between nine and twelve months to complete. During that time the business owner should not be distracted by deciding who can receive confidential documents and also negotiating contract details, while potentially breaching the overall confidentiality of the transaction in the process.
It is not unusual for unsolicited bids to change and even evaporate once the bidder has been able to thoroughly review the target company’s financials. It is just as likely that a seller will reject a potential buyer after they have reviewed the buyer’s financial position. In addition to counseling and advising the client on the merits of potential buyer’s qualifications, a key part of the M&A Advisor’s role is to establish the current fair market value of the subject company. At A. Neumann and Associates, we achieve this through a comprehensive interview with the business owner where all of the non-financial details of the business are discussed and the following information is assembled: current year to date activity; three past years of filed tax returns, and client projections of future revenues and expenses. During the client interview we work to uncover all relevant expenses that have helped the owner to minimize taxes over the years, but which, when added back, will substantially increase the asset value of the enterprise. All of this information is then forwarded to an Independent, Certified, Valuation Company that determines the current fair market value of the subject business using eight different recognized metrics, and in addition makes comparisons to relevant regional and national business transfer activity. Once the current fair market value of the business has been established, ANA will then advise the seller on the value and proposed structure of the current offer, and discuss the qualifications of the potential buyer.
Selling a business is a time-consuming process that, if done properly, will reward the owner handsomely for the effort. In the case of the unsolicited yet intriguing offer, it may ultimately result in the seller deciding that it is in his or her best interest to solicit additional offers by marketing the business to other potential buyers and investors. The team at A. Neumann & Associates is here to help our clients to make all of those very important decisions.
About A Neumann & Associates, LLC
A Neumann & Associates, LLC is a professional mergers & acquisitions and business brokerage firm having assisted business owners and buyers in the business valuation and business transfer process through its affiliations for the past 30 years. With an A+ Better Business Bureau rating, the company has senior trusted professionals with a deep knowledge based in multiple field offices along the East Coast and has performed hundreds of business valuations in its history. The firm’s competitive transaction fees are based on successfully completing transactions. For more information, please contact A Neumann & Associates at 732-872-6777 or email@example.com