| So, the business you started 20 years ago
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| | believe that he has to make some
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| has been successful, and now you're
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| | investment in the company, itself, after
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| thinking about moving on to the next
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| | purchasing it. If this is the case, his
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| phase of your life. If you're "lucky,"
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| | total investment is higher and he'll want
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| the next generation in your family has
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| | to pay you less, so that he can still
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| been groomed to take over and your only
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| | recover his total investment in 5 years.
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| real issue is to find the most tax
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| | These are obviously negotiating points;
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| advantageous way to pass it down.
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| | just be aware when you sell that the
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| Remember, before you do, though,
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| | buyer is probably taking them into
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| statistics show only about 1/3 of family
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| | consideration.The best thing you can do
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| businesses make it through the 2nd
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| | for yourself is to think about and
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| generation and then only 1/3 of those
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| | prepare for the sale long before you are
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| make it through the 3rd generation.If
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| | ready to do it. You understand your
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| selling is the option you're looking at,
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| | company's future better than the buyer,
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| you're about to enter a different world -
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| | but the buyer knows that and he'll need
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| and, unfortunately, one that you probably
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| | to be reassured that things are as good
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| don't know much about. For most small
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| | as you represent. The more information
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| business owners, selling their company is
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| | you've collected, tracked, and have
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| something they only do once. The buyer,
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| | available to give to the buyer, the
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| on the other hand, is more likely to have
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| | easier this will be. In other words, the
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| previously acquired a company than you
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| | better your business looks on paper, the
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| are to have previously sold one. And,
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| | more leverage you have in getting a price
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| even if he is a first time buyer, the
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| | closer to what you want. You can create a
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| odds are that he has looked at other
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| | real advantage for yourself, when you
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| companies before yours and has gone
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| | capture as much detailed information
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| through the analysis, pricing scenarios
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| | about your company as possible, by having
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| and possibly the negotiating process. In
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| | the ability to "prove" to the buyer that
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| other words you're quite possibly facing
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| | your company is what you say it
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| someone who has "been around the block" a
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| | is.Another important thing to understand
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| few more times than you have.Relative
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| | is that the buyer and the seller can have
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| experience aside, the best place to start
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| | very different perspectives about the
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| when selling your company is to put
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| | ultimate deal structure and the tax
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| yourself in the buyer's shoes. After all,
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| | implications of the transaction; in fact
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| when he buys your company, he's making an
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| | individual elements of the deal structure
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| investment and, if you can figure out how
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| | favor either the buyer, or the seller,
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| to satisfy the buyer's investment and
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| | but not both. The seller wants to
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| operational requirements, you've gone a
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| | maximize his capital gains income (taxed
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| long way toward facilitating the sale
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| | at a lower rate); the buyer wants to
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| and, hopefully, have put yourself in a
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| | structure the deal in any way that allows
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| stronger negotiating position.In general,
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| | him to expense the purchase price through
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| there are two ways to look at how much
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| | the company he is buying as much as
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| your company is worth - valuing the
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| | possible. For example, it's an advantage
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| assets you are selling and valuing the
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| | to the buyer to pay for the acquisition
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| Free Cash Flow (FCF) of the company (and
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| | partly through a consulting contract, or
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| the ultimate sales price may be some
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| | a covenant not to compete, because his
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| combination of the two). The market value
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| | company can then deduct those as
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| of your company's assets really
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| | operating expenses; the seller, on the
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| represents a floor on the value of the
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| | other hand, is receiving ordinary income,
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| company, because you could always close
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| | rather than capital gains income.Finally,
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| the company down, sell the assets for
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| | the seller is best served by selling the
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| what they're worth, and pay off the
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| | stock of the company, because any legal
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| company's liabilities, with the balance
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| | liability created by the company goes
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| going to you.Your business' FCF, on the
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| | with it, rather the staying with him. The
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| other hand, is a reflection of the value
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| | buyer, on the other hand, would normally
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| of your company as an operating entity.
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| | prefer to buy the assets of the company,
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| It's the amount of income that your
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| | because they don't carry the same legal
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| company can consistently generate, after
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| | liability as buying the stock and he can
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| compensating the owner(s) at a market
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| | write-up the value of the assets and gain
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| rate. Because a potential buyer is making
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| | a future tax advantage by doing it.The
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| an investment, he should be willing to
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| | bottom line - start thinking about the
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| pay you some multiple (or number of
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| | sale of your company early! By early, I
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| years) of this FCF, as long as he can
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| | mean years prior to the time you think
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| expect to get his investment back in a
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| | you might want to sell. It's obvious that
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| reasonable period of time. As a rule of
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| | you'll need good advice from an
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| thumb, I think it's reasonable for the
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| | accountant, an attorney, and even a
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| buyer to pay an amount that he can earn
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| | broker. But, these experts tend to be
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| back in 5 years. In other words, the
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| | brought in toward the end of the process.
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| buyer should expect that the earnings of
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| | You'll gain the biggest advantage by
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| the company over the next 5 years will
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| | taking a strategic approach to selling,
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| cover a market salary for him and then
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| | thinking about it long before you want to
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| throw off enough cash to allow him to
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| | pull the trigger, and structuring the
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| recover his investment in 5 years. If he
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| | company and collecting supporting
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| pays less than this, he may have gotten a
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| | information that will let you present it
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| great deal; if he pays more, he may have
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| | to a buyer in the most attractive way.Jim
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| paid too much.There are other things
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| | Deyo is the President of Business Advisor
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| related to pricing that the buyer is
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| | Online, an internet based service that
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| going to be thinking about. First, which
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| | provides small businesses with the ideas
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| 5 years should he consider? If earnings
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| | they need to grow and the resources they
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| are a lot higher in the most recent year
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| | require to make the right decisions. As a
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| before the sale, he will not consider
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| | former Sr. Vice President with a major
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| this a sufficient trend to pay for. He'll
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| | banking institution, Jim worked
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| want to average earnings for the past 2,
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| | extensively with small and medium sized
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| or 3 years and lower the FCF that he's
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| | companies and has over 30 years
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| paying for. As a seller, though, you'll
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| | experience in commercial and consumer
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| want to maximize FCF and include the next
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| | lending, accounting, finance, marketing,
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| couple of years, if you expect earnings
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| | and strategic planning.
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| to keep going up. Second, the buyer may
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