WAIKOLOA, HI — It’s OK to be greedy.
Lawyer Jayne Sassano of Business Consulting Services may not have said that exactly, but she did believe contractors looking to sell their business should be prepared for this “deal of a lifetime.”
“This is your business. This is your livelihood,” she said. “You should not be ashamed of trying to make a profit from it. After all, this is what you worked for.”
In her SMACNA presentation, “Selling Your Business: Setting the Stage for the Deal of a Lifetime,” Sassano noted that most business owners:
“Define and resolve these critical matters and you will increase the likelihood of making the best deal of a lifetime, regardless of who ends up as your buyer,” she said. “Stated another way, you will not make a very good sale deal without adequately resolving these four elements.”
From her experience, contractors must realize five important points:
1.Rarely will buyers have all the cash at a closing date.
2.The first plan you have for ownership transfer will have to be revised at least once in five years.
3.The most obvious, easiest path is probably wrong for your circumstances.
4.You have no experience selling operating organizations and your advisors may have less experience than they initially let on.
5.You will sell “as is.”
“Buyers rarely pay for potential,” she said. “Therefore, you have some basic issues to address before selling. Who are you selling to? What are you selling? Where is the value in your business? When are you selling? And, how will you transfer ownership and exit?”
“If you, as a company, are not willing to go to the next level, you should be a seller.”
One of the biggest decisions is who will be your buyer, she said.
“You have to figure this out. You need to communicate this in order to get the ball rolling. You have to narrow down your choices. Will it be your son? Your employees? Key manager? Nearest competitor? Consolidator? You have to decide.”
Sassano noted that when it comes to acquisitions, a publicly traded buyer is targeting contractors with management talent, market growth potential, a stable operating pattern as a base, justifiable investment (risk/price/returns on equity), a strong reputation, and who can fit into the buyer’s strategic vision.
“You have to work on these items,” she said. “You want to make yourself attractive to others.”
In regard to an exit strategy, she said a contractor should decide now on when s/he will no longer be responsible for the business. (“Choose a timeframe: ‘within the next three years’ or ‘sometime between 2006 and 2011.’ The idea here is to have this established in your mind.”) A contractor should also decide now how to transfer the decision-making responsibilities prior to exiting. (“Choose a reasonable method: ‘smoothly and gradually over time,’ or ‘on day of sale,’ or ‘forming an alliance with a key person.’”)
“I encourage you to make your exit strategy known to workers,” said Sassano. “On a personal level, owners emotionally tied to the business need to cultivate outside interests to replace intangibles gained from owning and leading a business.”
When it comes time to provide a monetary value, Sassano noted that this value can be “relative, subjective, emotional, capable of manipulation, and capable of being enhanced or reduced.” She asked contractors to pay close attention to their net income, as she estimated that the value of a company could be four times the value of net income.
“When you go home, meet with your CPA,” she encouraged. “Review your net income. If you are selling your company, the name of the game is to pump up your net income. You may have to pay out more in taxes now, but down the road if you show you have a strong net income, you will make out much better (at sale time). Remember, you want to show that you are valuable.”
Before closing, she gave the following six steps to follow:
1.Define your own goals and concerns and communicate them to family, employees, and advisors.
2.Communicate your exit strategy.
3.Work to start to separate yourself both emotionally and financially from your business.
4.Train and then empower employees to become leaders.
5.Find and use professionals whose experience and disposition lend themselves to making your goals a reality.
6.Keep a focus on “the market” so you can position your firm as the most attractive target for an acquisition when the time comes for you to sell.
“Plan for the worst and hope for the best,” she said.
For more information, contact Sassano at 877-953-1742.
Publication date: 10/30/2000