HOUSTON BUSINESS REVIEW

TUTORIAL ON SELLING YOUR BUSINESS “PREPARING YOUR BUSINESS FOR SALE”
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.

Last week in this series on Selling Your Business, I explored some of the questions which needed to be satisfied in order to arrive at a determination regarding the sale. Assuming that the decision to sell was affirmative and the reasons for wanting to sell were well thought out, it is now time to move deeper into the process and discuss preparing a business for sale.

There are two basic guideposts which, if followed, will help to ensure the sale of your business at the maximum market price in the shortest period of time. These are (1) plan early, prepare early (Pepe) and (2) instill buyer confidence and trust. In this article, I will review some aspects of the first standard and will finish the discussion about it and instilling buyer confidence in next week’s writing.

Pepe (plan early, prepare early) is a basic concept yet it amazes me how many owners of small to mid-sized businesses fail to adhere to this basic precept and, consequently, fail to maximize the value of their businesses.

Before I begin to discuss what is entailed in Pepe, let me share with you what is not – it is not “putting on your best face” in an effort to fool a prospective buyer into believing you have an organized, well managed and efficient operation when, in fact, you really do not; it is not about “window dressing” of financials and facilities when, in fact, they are normally in poor condition. These types of machinations will be readily seen through and will achieve the one and only thing we don’t want to accomplish – the undermining of the buyer’s trust and confidence. What Pepe is about however, is ensuring that good business fundamentals (“the basics”) are in place and in doing the right thing.

Early planning and preparing means that you (the owner) have created an organization which is attractive enough to prospective acquirers to get them to pay top dollar because the company

- Has the basics in place. There is a strategic plan for the business (it doesn’t have to be lengthy or particularly sophisticated, just well thought out). There are measurable goals and objectives for the organization and the employees are held accountable for the accomplishment of same. There are basic systems, policies and procedures in place ranging from policies on credit/collections to policies on inventory, fixed asset additions/dispositions, job quotations/approvals, etc. Note again that these systems and procedures do not have to be sophisticated – they only have to be effective and communicated to those responsible for the respective duties and responsibilities.

- Has good financial records and a good financial record – two separate and distinct attributes. Good financial records indicate the company has control of its accounting and financial operations. A good financial record would show sales and profits increasing for the last several years at a reasonably steadily increasing rate. Depending on the size of the company, financial statements should be prepared on a minimum of a quarterly basis and preferably on a monthly basis. There should be a budgeting and sales forecasting process in place.

- Has a good management team in place and this team will continue with the new owners. A basic solid organizational structure is needed to optimize “saleability”. You do not want a company which is overly dependent on the owner as all buyers will discount the price of such a business (or worse, will not consummate the purchase). Early planning and preparation will ensure the adoption of good management and organizational practices.

There are a number of other Pepe issues to discuss, but because of space limitations, this review will have to be finished next week. In addition to finishing the early planning and preparation section, I will also write about the second basic guidepost – instilling buyer confidence and trust. I have seen the sale of several very attractive businesses fall through because the buyers lacked confidence and trust in the sellers and their companies.

As always, see you next week. Remember, should you have any questions or need additional information, please feel free to contact the R/Fain Group at 832-646-0832 or via our web site.