Mergers & Acquisitions Advisory

A Neumann & Associates, LLC

April 8, 2021

Top 10 Owner Concerns When Selling a Business

By Jeremy Albelda

business-man

With 2020 in the rearview mirror, 2021 appears to be the year of possibilities.  You are probably looking for options and selling your business might be one of those options, however, there are some things you should consider before doing so.  Over A Neumann & Associates’ 18-year history we’ve seen and heard a lot while navigating individuals like yourself through what can be one of the biggest decisions of your life. Below, we will discuss the top 10 owner concerns when selling a business.

#1.  Revenue is down, but I think my company has growth potential.

Maybe 2020 treated you much like most companies and you had less than stellar revenue.   No one will acquire a company for its current performance, but all buyers want to see that a company has growth potential.  Thus, it is absolutely essential that a seller steps back and thoroughly defines all potential growth paths for the company, including the underlying capital infusion required to execute such growth plan.

Rest assured, every business has growth potential. Naturally, the current business owner – most familiar with the business – is the most qualified individual to provide guidance for such growth, but sometimes said owner is tired after all the years of running the business and it might take an external consultant or business coach to help define such growth – geographical expansion by opening offices in new regions, synergistic product or service line expansions either by way of organic growth or by acquisitions, the bolstering of human resources by hiring additional personnel – just to name a few. Money well spent!

#2.  How long will it take to sell my business?

While it varies greatly from one transaction to the next, the typical selling time for a small retail or service business ranges from four to eight months. For a larger business, a six- to twelve-month time frame is more common.  However, selling a business is a full-time job in its own right, and for that reason, we always suggest hiring an external advisor as opposed to “doing it yourself”.  Well-experienced advisors indeed know that a 8–12-month time line for a business sale can be detrimental to the business’ performance if not handled externally.

Thus, the best advisors urge owners to maintain their business’ performance – freeing up the owner’s time by navigating through the ins and outs of the sale. This includes a lot of “after hours” meetings addressing that most owners work around the clock.

#3.  I’m not a salesperson, how do I even market my company?

The market for ‘companies for sale’ is very competitive, to say the least. There are thousands of companies for sale at any given time, there is great ‘market transparency’ with the Internet and with the impending demographic shift, there will be many more ‘baby boomers’ to sell a business than to buy a business. Worse, the subsequent generations have been exhibiting a significant degree of ‘risk adversity’ in running – and acquiring – a business.  Not to mention the Covid effect has everyone questioning next steps.

The implication is that investors will demand concise, convincing information to explore an acquisition. The most critical marketing documents in this process are the Blind Profile, Confidential Memorandum (CM), and an accredited business valuation by a third party.

The blind profile should give an approximate synopsis of the key metrics of the company – assets, employment, cash flow – but should not divulge the company name, specific operation, or address.

The CM – to be obtained by the investor after pre-qualification – should include a detailed asset listing, tax-return-based financial information, growth projections and current and projected EBITDA with normalized Sellers Discretionary Cash Flow (SDCF) – including an explanation how it was developed. For example, discretionary personal owner expenses being run through a business should be indicated. In addition, the company’s competitive advantage needs to be illustrated, revenue streams explained, company org charts shown and so forth. Essentially, everything an investor needs to ‘make a decision’ should be truthfully disclosed.

In short, the Confidential Memorandum should represent putting ‘the best foot forward’ by the business owner in selling a business. Neglecting such, or simply relying only on a valuation, will significantly reduce the transaction price or jeopardize a sale altogether

#4.  I don’t know where to begin, whom I should work with?

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 selling a 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.

Your team should be made up of a reputable M&A advisor who will coordinate an independent certified business valuation, a qualified CPA/Tax Advisor that has experience in Mergers & Acquisitions, and an Attorney whose focus is on M&A transactions.

One aspect neglected and overseen by many sellers so often, is the selection of good, professional legal support.  As a matter of fact, the most frequent cause for terminated deals is a sell-side attorney who is not familiar with the “ins and outs” and having to “read up on” it.  At best, such situation results in a much-delayed transaction, at worst, both parties will ‘dig in their heels’ and the transaction will fail in the end.

#5.  What happens if my employees find out or even worse, my competition?

It is important that clients, employees, suppliers, landlords and lenders are not aware of the possible sale of the business.  That is why it is important to have the right team in place that will maintain confidentiality throughout the whole process.  Almost without exception, all business owners are concerned with preserving confidentiality throughout a sale transaction, violating such can have significant negative impact.

A good M&A advisor will have the proper security measures in place – not only starting with a fourfold investor pre-qualification process, but also to provide information to an investor as the investor shows increasing interest and motivation to execute a deal.  For that matter, the advisor prepares a blind profile, sometimes called a teaser, outlining the generalities of the transaction, market place, and business.

The knowledge about a pending business sale has an impact on vendors, employees, banks, landlords and most importantly, customers. Generally, no individual likes change – the fear of the ‘unknown’. In the case of a business sale, however, this can have a significant negative economic impact.

Specifically, vendors will be concerned about receiving payments, employees fear lay-offs, and banks are concerned about the servicing of loans. Most importantly, customers will start to invite competitors to bid on their business in order to secure product/service sourcing in the future. Worse yet, the longer the time span between a breach of confidentiality and a deal closing, the worse the impact will be from any one of the stakeholders above – with a direct impact on the performance of the business and deal value.

Thus, one key objective of the marketing documents—in particular, the blind profile, is to maintain confidentiality with respect to the sale of the business, preventing stakeholders from learning about the sale.

#6.  It’s going to be a rough process.

Business owners are usually industry experts – highly competent in the day-to-day operations of their business. Selling a business is a completely different transaction – one in which business owners are not familiar with.

Generally speaking, most business owners feel intense anxiety during the sale process, particularly during periods of uncertainty or conflict. Every deal comes with a unique set of challenges.  A good M&A advisor does not expect a business owner to be an expert, but he/she will navigate the owner through the deal process. Being proactive, a good advisor can reassure a seller during these uncertain times.

Such re-assurance prevents a loss of momentum that ultimately can kill deals. Buyers sense uncertainty on the sell-side and are inclined to lose interest in a deal in such a scenario – often interpreting such uncertainty as lack of motivation on the sell-side.  Good M&A advisors can put a stop to this process before it spirals out of control by instilling confidence and ensuring the deal is appealing and efficient to all parties.

#7.   I haven’t been planning to sell, is it still possible?

Long-term planning is key to any successful business sale. By keeping updated records, a detailed business history and sales portfolio on hand at all times, it will make your planning pay off. You just never know when that perfect buyer may walk into your business and make you an offer you just can’t refuse.

Insufficient financials don’t necessarily have to prevent a business owner from selling a business or to accept a lower business valuation or transaction price. A good advisor will give sellers an early heads-up as to what needs to be improved in the financial reporting system. Often this can be accomplished with rather small adjustments.

Business owners and advisors need to honestly discuss such deficiencies, remedies and how it will impact the anticipated business valuation. A seller needs to understand the need for an immediate, consistent, and correct financial reporting system as it will surely be requested from potential buyers

And whereas a proper valuation on the front end is very important, tax planning on the back end is just as important. It does a seller little good to have obtained one hundred percent of the asking price, only then to turn 50% of such over to the IRS or State government.

#8.  What type of deal is best for me?

Deal structure is very important with respect to valuation and tax planning. More importantly, often sellers rush to the highest bidder.  However, price is most likely less important than deal structure: for example, is A/R and A/P included? How will employee retirement obligations be treated? What assets secure the seller note? On what basis are royalties calculated, and what audit mechanism is in place? What kind of consulting and employment agreements will be put into place for the seller? Will SBA bank acquisition financing allow for a seller note pay-back?

A trusted M&A advisor can help you walk through each of these scenarios to decide which type of deal best fits your needs.

#9.  Am I asking enough or too much; I put everything I had in to this company?

Setting a too-high or unrealistic price tag on a business can lead to a dead-end street. Expecting to get top dollar for a business that generates little or no profit is simply using bad business sense and jeopardizes confidentiality. Consider your industry, similar businesses, the economy and your marketplace when pricing your business to sell.

Another mistake is to price the business too low. Often business owners will price their business low because they are burned out, suffer from an illness or did not get good advice. Do research about other business sales before jumping in with both feet.

When working with a good M&A advisor they’ll be able to determine an accurate price point by way of an accredited, third party valuation firm.

#10.  Is this the right buyer, I still want my employees and customers taken care of?

Taking the first offer may not necessarily be your BEST offer. Selling your business for top dollar with little or no money down along with an extended contract may lead you to lose it all due to a bad deal structure.

Evaluate your options and make the best selection for the long term. Ask yourself, is this the best person to buy and run my business? Or, can they quickly connect with my customer base and learn how to market effectively? When the business sale goes as planned, it creates a tremendous opportunity for both business owners and the success continues.

When working with a qualified M&A advisor, they prequalify all buyers to make sure they are a good fit for the purchase and have your best interests, as well as the interests of the company aligned.

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.”

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“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.”

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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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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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