HOUSTON BUSINESS REVIEW

TUTORIAL ON SELLING YOUR BUSINESS “WHY AM I SELLING”?
By Ralph Fain

Ralph Fain is a principal in the brokerage firm, R/Fain Group. Mr. Fain also has over 20 years of broad business experience with Fortune 500 companies. R/ Fain Group is a professional business brokerage firm which confidentially represents the interests of various sellers and buyers. Each week Mr. Fain will give tips on Business Brokering, and how to sell your business.

As we have mentioned on the radio show (Houston Business Show, 650 AM, Sunday, 12:00), the sale of a business is a complicated and exhaustive endeavor and, quite possibly, it can be an emotional process as well (especially if the seller is the long-time founder of the company). You are selling your “baby” – something you put blood, sweat, and tears into to ensure its health and success.

In addition to this emotional component there is an obvious financial component – your business most probably represents your greatest financial asset and, consequently, the selling of your business will be the single most important financial transaction you undertake.

No matter if the sale proceeds are to be used for retirement, investment in another business or any other purpose, you want to ensure your business is sold for the maximum possible price and to the most qualified buyer. You do not want to err in this process and leave hundreds of thousands of dollars on the table. Similarly, you do not want to sell to an unqualified buyer who may run the business into the ground leaving you with an uncollectible note (this case assumes some owner financing), unpaid vendors (one of whom is your best friend), unresolved tax issues, etc.

The purpose of this article (and the articles in this series) is to assist you, the business owner, by providing you a basic framework to utilize in the process of selling your business. These articles do not purport to cover all issues in detail and are certainly not intended as legal advice. They represent simply a discussion of fundamental business issues which should be considered in the process of selling your business.

With the above disclaimer behind us, let’s discuss (in general and in highly summarized fashion) the first consideration of a business owner contemplating a sale – the question to be answered is “Why am I considering selling my business? Is this the correct course for me”? There are several areas which need to be explored regarding this.


- Do you, in your role of owner/employee, want to continue working in the business or in the same industry? Will you be required to enter a non-compete agreement and how restrictive will it be? What are you looking to accomplish from the perspective of owner/employee? Are you selling because of burnout and could this be a temporary condition?

- As the owner only, what are your goals in selling? As mentioned earlier, are you looking to retire, do you need funds to purchase another business, are you contemplating a change in career, etc.? In short, why exactly, as owner, do you want to sell?

- What may be the effect of the sale on employees – particularly long term employees? Will employment be extended to them by the buyer(s) or will the employees be negatively impacted? Can I minimize, at least for some period of time, any negative repercussions to them? Who else might be negatively affected by the sale (customers, vendors, family members)?

- Am I selling because the business, in order to achieve its potential, needs additional capital? Can this capital be obtained via different funding mechanisms? Should I consider selling only part of the business in order to raise the requisite funds?

The above questions, at a minimum, need to be answered in order to arrive at the correct answer for you. Once you have explored the above areas and have determined that “yes, I want to sell the business and, yes, you know what your objectives are in selling, it is time to move to the next step – preparing your business for sale.

In the next several articles (at least two), I will delve into the steps involved in the preparation of your business for sale. These topics include financial preparation, optimizing profits, reducing/eliminating certain costs, employee/management considerations, business relationship and a host of other subjects.

See you next week in this space. Remember, should you have any questions or like additional information, please feel free to contact the R/Fain Group at 832-646-0832 or via our web site.