Selling Your Business
Building Your Company's True Value:
How to Sell Your Business for More than It's Worth
Getting top dollar for your business, and avoiding a "fire sale" situation in which selling quickly is a priority, is a process that might be several months or even years in the making.
Lang, Lang & Klain, P.C., and
Jim Afinowich, IBG
Fox & Fin
The sale of your business is potentially the
most important decision you'll ever make. If you're like many
business owners, you may have 75% or more of your net worth tied up
in your company. You have sacrificed countless hours and risked your
family's financial security by starting or purchasing a company.
And, chances are, you will sell a business only once in your
According to a Small Business Administration
survey, eight out of 10 sold businesses bring 20% to 50% less than
full value. Conversely, business owners who truly prepare their
businesses for sale often fetch a price that is at the top of the
market-value range, and sometimes more than top dollar.
Guidelines for Getting Top Dollar
1. Build a strong middle management team,
and don't be indispensable to your business. Buyers don't want
to purchase a business that depends on your presence or the efforts
of just one or two employees who might not stay. The creation of a
strong middle management team creates value for buyers by
eliminating reliance on a single individual.
2. Before you put your company on the
market, perform a Phase One Environmental Site Assessment. The
worst possible time to discover an environmental problem is the week
before closing. You will spend six months working with buyers, and
planning your retirement - don't force yourself to restart the
process due to some contamination being identified on company
3. Recast your historic financial data.
Chances are that your historic financials don't show an accurate
picture of what the buyer may expect under his management. That
means removing (by footnote) from your income statements any
discretionary or one-time items, such as personal life insurance,
over-compensation to you or to family members, and personal expenses
that passed muster with the IRS but weren't necessary for company
4. Have written policy and procedure
manuals. Buyers will pay more for companies that are
professionally organized and documented, because they perceive the
risk factor to be lower. Well-written procedure manuals and policies
(including employment policies) avoid confusion, prevent litigation
and add value for buyers.
5. Sell the future, not the past.
Buyers purchase your company's future ability to produce income. The
value of the business will be based on the buyer's projections of
future profits, not your own. They may have resources that are
unavailable to you that could substantially change the company's
future profitability picture.
6. Identify and document your phantom
assets, and keep the valuation current. The "book" value of some
of your assets has decreased for tax purposes, but their real value
may be much higher. Assets should be recast to show current fair
market values. Equipment, for example, should be valued as
"operating in place" and include any costs of installation and
7. Create a "confidential business
report" - and include pictures - to educate buyers . A CBR
typically includes a confidentiality disclosure, executive summary
of the business, company history, operational overview and analysis,
organizational chart and bios of key employees, market analysis and
marketing plans, historic and recast income statement and balance
sheet, and projections of future earnings along with the underlying
None of these steps will be completed
overnight. Getting top dollar for your business, and avoiding a
"fire sale" situation in which selling quickly is a priority, is a
process that might be several months or even years in the making. To
guide you through that process, the assistance of an experienced M&A
advisor, and an attorney who knows the construction industry, can be
invaluable. Start now.