Mergers & Acquisitions Advisory

A Neumann & Associates, LLC

March 10, 2014

The Five Things Every Business Owner Should Know Before Selling Their Company

By Joseph Eneldas

Placeholder

Most business owners think they know what their firm is worth – or worse, don’t think it is very important.  Unfortunately, both approaches are equally disastrous.  You only get one chance to sell your firm and it must be done correctly in order to maximize the financial return.  The first and most important step is to know exactly what the organization is worth as an ongoing concern and how it will be perceived by the buying community.

Starting with this key issue, here are the 5 most important things that every business owner should know and realize before attempting a sale:

 

1.  Industry ‘Rules of Thumb’ Regarding Valuation are Essentially Meaningless

 

These type of value approximations might be comforting to the business owner, but have little basis in analytical fact finding and should certainly not be used to make a sales decision.  Even if an owner (or their very qualified CPA) thinks they can determine the valuation correctly, their opinion does not carry much weight in the eyes of the people who ultimately matter – namely the buyers.

An independent 3rd party accredited fair-market appraisal is the key component and sets the stage for maximum financial return and an efficient transaction.  “Without this in place”, says Achim Neumann, President of A Neumann & Associates, New Jersey “the buyer will almost always request their own valuation which is a seller’s nightmare as this is done prior to the seller having an offer in front of him.  If they don’t, then the SBA most certainly will request one as a prerequisite to obtaining funding for the transaction.”  It is to the business seller’s great advantage to have this vital analysis in place prior to entering the market – full value is obtained and a quicker closing is achieved.

 

2.  A Local Competitor is NOT the Most Likely Buyer

Another common misconception is that a major competitor will be the ultimate buyer.  “Over the past 10 years, the sellers have actually previously known the buyer in less than 10% of all our closed transactions over 450 offices nationwide” adds Neumann.  For a seller to enter into the market with a preconceived notion as to who the buyer will be only limits the market and the resulting opportunities.

 

3.  Cash Flow (and Not Tangible Assets) is King

 

Assets are nice, but cash flow is king!  “Sellers Discretionary Cash Flow (SDCF)” – in short, the total profit, compensation and benefits paid to the owner – is the driving force for market valuation.  If total tangible assets outweigh the ongoing concern value of the business, then a liquidation sale will yield a higher value.  “The most desirable situation is for a company to have a solid asset base and have that base generate high profit margins which translate into significant cash flow to ownership,” says Gary Herviou, Managing Director, with A Neumann & Associates.

Once again, the independent valuation process will properly determine and itemize the components of SDCF and ensure that the business is presented at its maximum value.  When positioning a company for sale, it is very important to show every possible dollar and make sure of accuracy and supportability.  There are NO ignorant buyers and any deception will surely be brought to light in the due diligence phase.

 

4.  A Letter of Intent is a One-Way Street

 

“At A Neumann & Associates, we only deal with firm Offers to Purchase” stresses Neumann.  “The reason is simple, really.  A weak Letter of Intent only binds the seller and literally takes the business off the market while the buyer contemplates more.  This is simply unacceptable for any serious seller.”

A formal Offer to Purchase (OTP) provides a strong deal framework and is usually accompanied by earnest funds deposited into the attorney’s escrow account.  Most importantly, the OTP (signed by both parties) details specific date deadlines for financing, definitive agreement, due diligence and the closing.  Because this document is so strong it ultimately reduces legal fees and shortens the timeframe to a successful closing

 

5.  Selling a Business is Not a One Person Job

 

As a business owner, it goes without saying that your primary focus should always be on the performance of the company.  This is never more vital than when trying to sell the company as the most recent performance will be scrutinized most heavily by any potential investor.  Without a professional team in place to properly value and market the sale, the business owner is left with performing both tasks. The usual result is both efforts suffer.

Proper valuation, comprehensive marketing package, market reach, marketing strategy, buyer qualification, confidentiality, deal structure, tax implications, deal negotiation, financing, due diligence, legal support – these are among the many ingredients to an efficient business transfer.  A professional M&A advisor along with a trusted CPA and legal council is the proper team to handle this mission.  A well-positioned intermediary working on behalf of the seller allows that business owner do fully concentrate efforts on the performance of the company.  The task is challenging even with that team – almost impossible without.

“Time is the enemy of every deal” says Herviou.  “These issues and suggestions are all designed to help the business owner know exactly what goes into the process and the importance of correctly managing the landmines along the way.”  If done properly, an efficient transaction is possible – one that quickly maximizes profit in a confidential manner and meets the ultimate goals of the business owner.

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 info@neumannassociates.com

Leave a Reply

Your email address will not be published. Required fields are marked *

Any questions? Please contact us at 732-872-6777
Call Now

Client Testimonials

“ I appreciate your diligent approach to screening buyers and sellers as well as the high quality CIM that you produce.”

Andrey O, Investor

“Finally enjoying retirement after recently selling my business using the services of A Neumann & Associates. Joe Oddo provided the conduit to a successful transaction. Joe knew when to inject input and when to simply listen and allow the buyers to vent, step back and regroup. The outcome met our expectations and got us to the finish line, which included my staying with the company six months in order for the buyers to get their footing and keep our workforce in the loop. He helped at every step by providing his expert guidance & resources. Thank you!”

Emily Parker Myers, Co-Owner - Myers McRae

“I had been in touch with Karin and Gary from A Neumann & Associates regarding some opportunities and was looking forward to meeting with them. Hence, when they organized a seminar in Princeton, NJ, I was quick to sign up. The seminar was very informative as the team walked the attendees through various scenarios and referenced real life buying/selling situations they had been through. The sessions by Gary, Karin and Achim were crisp and focused and brought clarity to potential seller and buyers. I strongly recommend the team and look forward to continue working with them.”

Gaurav Tyagi

“Thank you for your Event on "How to value, Sell, and Buy A Business for Maximum Profit" and the insight into ANA’s approach on what is involved in the Business Exit for sellers. Garys Hervieiou's "Business Valuation", Achim's "Deal structure" presentation and Karin’s "Preparing the Package" are real street knowledge shared. They answered attendees questions which makes it more interesting for learning from others. Great for small businesses like us. The presentations were totally worth our time and travel for the event to Princeton, NJ from Rockville MD. Ravi Bhutani, President, CIPS”

Ravi Bhutani

“Gary, this is to thank you for an excellent job done in selling our business. We could never have done it without your professional expertise, dedication and time put in without reservation to make it happen. We will gladly and highly recommend you to anybody in our position.  It was a pleasure to work with you.”

Pat Iammatteo, Owner

“Your vetting is simply outstanding, among the best I've seen from a broker.”

Eric H., Investor

“I recently contacted A. Neumann and Associates about getting a valuation of my business done. I spoke with Marc, who explained the process in detail. After meeting with Marc in order to get a clear understanding of my business, and what I was hoping to accomplish. His patience in answering all my questions and his knowledge of the proper way to market my business gave me great confidence that this is the firm I will be using to sell my business for max value. Working with Marc at A Neumann & Associates was very easy and professional. I did not know all that was going to be involved in selling my business but they helped me through the process. What I thought was going to be a just another one of those pushy sales companies was just the opposite. Polite, knowledgeable, and a pleasure to talk to and deal with. I highly recommend this firm to anybody who wants to sell now or down the road. Marc not only knows his stuff, but actually is a real nice guy.”

Double Diamond

“Used A Neumann & Associates to sale my business. could not imagine having done it with out the patience and experience Gary provided. Thanks Gary,”

Dennis Frazier

“Working with Marc and his company was a pleasure. What I thought was going to be a just another one of those pushy sales companies was just the opposite. Polite, knowledgeable, and a pleasure to talk to and deal with. Marc handled most of the interaction and he has one of the greatest demeanors. Again, it was a pleasure working with him and his firm.”

Douglas DiCeglio

“I recently completed an acquisition using A Neumann & Associates. Tony Valentino was very helpful and accessible during the entire process. They do a thorough job vetting both parties and got us to the finish line.”

Srini Mudambi
view all testimonials

Contact A Neumann & Associates, LLC

If you are considering selling your business, please contact us to learn more about our comprehensive service spectrum. Our experienced professionals will answer all your questions about selling a privately held business in complete confidentiality. Please fill out our contact form, or call us at 732-872-6777. We will contact you directly and will never identify ourselves to your employees.

call us now
Contact Us for a Free, Confidential Consultation

Experienced M&A Advisors available

Full Name
Email Address
Phone Number
Message