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updated: 9/15/2018 12:58 PM

Thinking of selling your business? Now may be a good time

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  • ANDREW J. KELLEHER, JR.

    ANDREW J. KELLEHER, JR.

  • DAVID P. BUCKLEY, JR.

    DAVID P. BUCKLEY, JR.

  • ANDREW J. KELLEHER, JR.

    ANDREW J. KELLEHER, JR.

 

Selling a business is one of the most important financial decisions in a business owner's lifetime. Given many baby boomers' desire to retire and sell their businesses, as well as the current low interest rates making buyers' access to financing relatively inexpensive, now may be "the time" for business owners to sell and "get their price". "Although closely held business transactions have slowed slightly during the first half of 2018, business valuations remain at peak," says Greg Lafin, managing director at BKD Corporate Finance. It's a sellers' market, but maybe not for much longer. "As we have seen with the Prime Rate, rates have slowly risen from 3.5 percent in December 2015 to currently 5 percent. We are expecting rates to continue to climb," says John Paul Hills, senior vice president at Wintrust Commercial Banking.

Selling a business should be a controlled process of making a business attractive, marketable and profitable. The actual sale transaction is just a part of the whole selling process. To net the most value from sale, business owners should take the proper steps and time to prepare. Mindful consideration of the following can help attain greater success:

Plan in Advance

Abraham Lincoln said, "Give me six hours to chop down a tree and I will spend the first four sharpening the axe." Savvy sellers take the time to identify potential buyers, determine what buyers desire and make the appropriate changes to fulfill those desires. Some common planning action items:

• Increase revenue, positioning and value by expanding customer base and locking down existing suppliers

• Invest in salespersons and consultants to increase market share and operational efficiencies

• Hire and train others to replace the seller-owner's operational functions

• Address cash flow drains such as unprofitable or slow paying customers and address the collection of accounts receivables

• Eliminate potentially suspect or gray business, employment and tax practices

• Review business level legal and tax structuring, compliance and operations. Examples include entity structuring and protecting intellectual property such as core know-how, customer lists, patents and unique operating capabilities

• Address audit, accounting practices, controls and tax records to provide credibility to purchasers

• Secure third-party leases, contracts and the like

• Execute employment agreements, buy-sell agreements, non-competes, and restrictive covenants with co-owners and key employees

• Ready the seller-owner's personal financial planning for anticipated seller-financing concessions and loss of business level deductions

• Document key operational processes and modernize computer systems

• Settle outstanding litigation threats or issues

• Review personal level estate and income tax exposure as well as asset protection planning

• Address business and personal goodwill considerations

• Discard unsalable inventory

Form a Team of Professionals

Business owners are experts in operating businesses but not necessarily in preparing businesses for sale. Many sellers fail to hire business brokers and intermediaries or seek pre-sale assistance from their attorney, banker and accountant. Attaining professional guidance can provide excellent market and sale process perspectives as well as critical valuation, legal and tax structuring advice. Business owners using a team of dedicated and well-coordinated professionals are more likely attain the best sale and post-sale long term results.