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

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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

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Client Testimonials

“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

“Claus out of Florida helped us with the sale of our business. We had never done anything like this and him and his team walked us through the process from start to finish. We had some challenges through the process and Claus continued to show up even in the difficult conversations.”

Colby Harris, Co-Owner, Del Mar Designs

“Claus Madsen thoroughly helped us with selling our company. From the 1st introductory meeting explaining to us what was possible, to providing us with resources to assist with the sale. Claus was invaluable throughout the whole sales process. Claus was with us every step of the journey and always made himself available for any questions or issues that came up along the way. If you are interested in selling your business, I encourage you to reach out to Claus and the ANA team so that they can let you know what’s achievable. These guys will make it happen!”

Ron Harris, Co-Owner and Vice President, Del Mar Designs

“A Neumann & Associates is the only business broker I would use or consult with. They have assisted with 3 business sales over the past 15 years with me. They are honest and sincere and have always performed better than my expectations. They are the only one i would use for the sales of my businesses.”

James Belanger, Business Owner

“I wanted to take a second to commend the exemplary customer service from both you [Karin Neumann] and Mr. Valentino. It’s both a rarity in the industry, and very much appreciated.”

Andrew G., Investor

“We worked with Neumann & Associates to investigate the purchase of a research company in 2010 and found Achim to be capable, forthright and realistic. His depth of experience enabled us to fully understand our options, offering creative options that might enable the acquisition. While we didn’t acquire that particular company at that time, we know exactly who to call whenever we’re looking to buy or sell a business.”

Daniel Coates, Buyer

“Purchasing a business through this firm was a pleasure. Gary was very professional and transparent throughout the entire process. I look forward to working with A Neumann & Associates in the future.”

William Klemens, Buyer
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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.

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