DECIDING TO SELL

Most business owners face the dilemma of deciding when to sell. The answer is not simple.

Obviously, selling at the right or best time is ideal. But how can you determine that “best time?” In addition, maybe you should sell a minority interest to employees (e.g., ESOP) or a private equity group (PEG), rather than the entire firm.

Often, the current market dictates your window of opportunity. How long will that window be open, and is your business in a desired industry segment/niche? Mentor Securities is asked these questions nearly every day. There is no “one size fits all” solution. Each potential seller must determine his/her timing. The most important aspect of selling a business is whether the business is really ready to be sold. The exit process should be carefully planned in advance. The right professionals should be hired to fulfill the plan and minimize the pitfalls which reduce the price to the seller.

Key Exit Issues

• Assess the firm’s known and unknown strengths and weaknesses
• For the family-owned business, address each party’s short- and long-term interests and goals
• Ensure that the business structure and shareholder agreements allow for the appropriate buyer (even if sold within the family)
• Establish governance from management/board of directors apart from non-family stakeholders
• Evaluate and guide the employee retention and incentive process to install a well-functioning, deep management team
• Refocus the business to the most profitable markets/products
• Implement appropriate systems, record keeping, and cost controls
• Protect intellectual property (IP) via legal documentation
• Determine that adequate capital is available for current needs and capital expenditures
• Analyze wealth transfers/tax planning and the consequences of a transaction
• Develop baseline value of the business now, and then measure the value created when you decide to sell