BUYING OR SELLING A BUSINESS? to download/view this document in pdf format, click here What should you focus on when buying or selling a business? Management is at the top of the list because the process is almost always complex, emotional, expensive, and time consuming. Managing six critical steps will minimize your costs and maximize your return as you climb the steps to success. The six critical steps are: Planning effectively, creating your transition team, establishing value, developing a compelling marketing program, successfully negotiating the deal, and completing a smooth transition. Planning and the transition team will be covered in this article. Valuation, marketing, negotiation and transition will be addressed in subsequent BP Reports. Planning: The business world is changing at a faster rate, is more complex and is less predictable than ever before. Planning is a constructive way to deal with inevitable change. It gives us a tool to test assumptions, develop a collective corporate future, and articulate that future so everyone in the organization works toward common goals. Planning can be used to sell an existing business or to identify and acquire the ‘right’ acquisition. You can make more money and gain more control by starting three to five years before an actual transaction by implementing a strategic transition planning process. In brief, you create an overall vision that is meaningful, easy to remember, remains stable over time and calls participants to action. For example, “We create successful outcomes for our clients,” or in the case of Nike a few years ago, “Crush Reebok.” Next, develop a more personal and specific vision for yourself, like; “I will sell my business by the end of 2006 for at least 3 times what it is worth today.” After you identify the vision, your management team develops specific objectives, tasks, deadlines and designates responsible individuals to implement the plan. Balance your efforts between marketing, products and services, work processes, improving employee skills and abilities, and reaching financial objectives. An effective objective must be specific, achievable, and time-specific. You can set short-term goals, benchmarks and milestones, delegate responsibility and monitor success in as much detail as necessary. Objectives may change as business conditions change, but the overall vision tends to stay the same. The strategic transition planning process will help you clarify your vision, build teamwork among employees in your company, focus organizational energy on areas of strategic importance, and of course, increase the probability of achieving your vision of success. Your daily activities work toward developing a more effective and efficient company with the value drivers that buyers desire. This means more operating profit in the short term and a higher price and a cleaner deal in the long term. Even if a transaction is imminent, formal planning will help you identify important issues and outcomes. This will keep your transition team working toward common objectives. You will be able to monitor progress or identify obstacles against the “ideal” while adapting to unforeseen changes in a manner that benefits your needs. There are multiple approaches to business planning. Some companies do it all in-house. But beware of organizational inertia, internal politics and difficulty with getting people to think “outside the box.” Many companies hire planners or facilitators to set up and manage the process. Hire someone who understands that this is a dynamic, ongoing, living process. It can be fun as well as productive. Give us a call to discuss the planning process in more detail. Transition Team: A qualified and experienced transition team can create value in many ways. They will generally help you net more money, reduce personal time commitments and moderate your stress load. The ideal team will be made up of people you trust. Start with professionals you know. Interview them about their ability, experience and track record. If this group lacks appropriate experience ask for referrals to specialists. This can be a win for you, your regular advisor, and the specialist who becomes involved. A CPA specializing in business valuations and M&A deals will help a buyer or seller determine a reasonable price and financial structure to generate the best returns while minimizing financial risk and taxes. If you are a buyer, the CPA specialist can also assist with ‘due diligence’ to confirm that seller representations about the business are in fact true. The CPA specialist will help with closing to ensure all the loose ends are tied up to your benefit. Our team at Berntson Porter & Company, PLLC is experienced with all facets of deals and has a track record of adding value to transactions. In general, an attorney specializing in deals will help draft agreements to protect your interests while contributing to negotiation and maintaining forward momentum. A broker or merger and acquisition specialist will assist with marketing, pricing, negotiating, building momentum, and bringing the parties together. As you build your team, evaluate each specialist for unique talents and abilities. For example, a CPA may have special negotiating skills, or an attorney may understand the financial and tax aspects of deal structure, or a broker may have a legal background. Build your team based upon their skill sets. If a transaction happens quickly or over many months make sure your team understands your priorities. This is another benefit of developing and using a strategic transition plan. Without common goals and a thorough understanding of your personal needs each member will focus on looking good in their area of expertise. A broker may want to complete the transaction quickly and at the highest “price” to receive the highest commission. Many CPAs will be concerned with the terms and structure of the deal to get you the most after-tax dollars. Some attorneys are focused only on protecting your legal interests without giving away any ground to the other side. These are all positive concepts, but without consensus of purpose wasted effort, adverse results, or even a dead deal may result. For example, the attorney or CPA may be so concerned with a perfect tax structure that bickering with the other side over immaterial technicalities might squash the deal you want. This is where a good negotiator adds value. Choose one member of your team as the primary negotiator based on a successful track record and skill. Time and time again we have seen that a good negotiator, whether it is you, a broker, CPA, or attorney, is often the key that locks up the deal. In this BP Report, we have discussed the first two steps to successfully entering into a profitable business transaction. Developing and implementing a strategic transition plan and organizing your qualified and experience team is the start. The next step is to obtain a comprehensive valuation and then move into the actual process of marketing, negotiating and making a successful transition. These topics will be covered in upcoming issues of the BP Report. Please give Allan Vander Hamm, Greg Porter, Bob Berntson or John Launceford a call at (425) 454-7990 to discuss any of these topics. Allan
Vander Hamm, CPA, ABV |