What’s Involved In Due Diligence When I Sell My Business?

August, 2008 Op-Ed Article

What’s Involved In Due Diligence When I Sell My Business?

Due diligence is a critical phase in the sale of any business when the buyer and his/her trusted advisors perform several kinds of audits to: (1) Confirm everything the seller has represented about the business is true and (2) Make certain that there are no hidden surprises. When the buyer’s due diligence uncovers serious discrepancies/ deficiencies, it is not uncommon for the buyer to require a significant reduction in the purchase price and/or a significant tightening of the terms in order to still close the deal. Frequently, the deal may fall apart altogether if the deficiency is serious enough.

Due diligence usually begins after the parties have agreed in principal to the price and general terms of a deal, and usually requires 30 to 90 days, depending upon the complexity of the business. It has at least four phases: Legal, Financial, Environmental and Operational, which typically proceed in parallel.

The buyer’s attorney usually leads the legal phase, which seeks to confirm that the business is now and will continue to be properly licensed, that there are no lawsuits pending against the company, and there are no problems in transferring the company’s contracts with its existing customers and vendors.

The buyer’s CPA/ accounting firm will usually lead the financial phase, which seeks to confirm that the business books and records accurately represent the current financial condition of the company. The buyer’s bank will also have their own list of questions regarding the business’ financial condition, which must be satisfied before they will approve the acquisition loan. During this phase, the bank will also require independent appraisals of the business’ assets. If these include real estate, either owned or leased, the bank will no doubt require an environmental phase one audit, depending upon the nature of the business.

Operational due diligence is usually conducted by the buyer’s own management team.

During due diligence, the seller is likely to feel like the company – and perhaps even the seller personally — is being put under a high-powered magnifying class, which can be pretty comfortable even when it goes well. An experienced M&A advisor can be of great assistance during this phase by coordinating and simplifying the information requests from these various sources. In some cases, we can identify those requests that aren’t relevant or material for this business, or by suggesting some alternate ways to get the buyer the basic information he/she requires from readily available sources/ reports, rather that initiating a time consuming special study.

If you know of a business owner who’s thinking of selling or buying a business and who might benefit from a free consultation with us, have them contact me, or any of the M&A professionals at www.bradwaygroup.com

The Bradway Group
813.299.7862 Direct
ertel@bradwaygroup.com

© 2008, J. Michael Ertel, PA

When Is The Right Time To Sell Your Business - Part 3

June, 2008 Op-Ed Article

WHEN IS THE RIGHT TIME TO SELL YOUR BUSINESS – PART 3

THE CURRENT WINDOW OF OPPORTUNITY

Some experts have observed that several trends have converged to create a uniquely attractive window of opportunity for those business owners who would like to sell their business.

First, they note that about 250,000 businesses are transferred through sale, inheritance, etc. each year, and this annual “demand” is expected to remain fairly constant for the foreseeable future.

Second, due to the aging of the Baby Boomer generation, the number of businesses available for sale is expected to grow to 500,000 per year beginning in about 2010. As supply begins to exceed demand, selling prices will begin to fall.

Third, tax rates on capital gains are currently at record low levels, but most observers believe these rates will likely go up –perhaps dramatically — as early as mid-2009, depending upon which party comes into power in January.

Lastly, though much has been written about the current “credit crunch” and resulting economic slowdown, the truth is that: (1) interest rates are still lower than they have been in 40 years, and (2) banks still have plenty of money available to finance the sale of fairly priced businesses.

The combination of low interest rates, low tax rates, and balanced supply and demand is creating a more favorable climate for the sale of a business today than may exist for another 10-15 years, according to many observers.

If you know of a business owner who’s thinking of selling or buying a business and who might benefit from a free consultation with us, have them contact me, or any of the M&A professionals at www.bradwaygroup.com

Mike Ertel, CBI, M&AMI
The Bradway Group
813.299.7862 Direct

© 2008, J. Michael Ertel, PA

When Is The Best Time To Sell Your Business?

January, 2007 Op-Ed Article

WHEN IS THE BEST TIME TO SELL YOUR
BUSINESS?

This is the time of year when many business owners begin to think seriously about selling their business, and a question I am frequently asked is “When is the best time to sell my business?”

In my experience, the very best time to sell your business is when you DON’T have to.

From a buyer’s perspective, picking the best business to buy is a little bit like picking the best stock to invest in: the most attractive businesses to buy – and therefore the ones that will command the highest prices – are those that show consistent improvement in sales and earnings, and have the expectation that next year’s sales and earnings will be even better.

From a bank’s perspective, these are also the most attractive businesses to finance.

Conversely, a business that has shown an inconsistent pattern of sales and earnings, with some very good years and some not-so-good years, will command a more conservative valuation, while a business that seems to be in decline, with this year’s sales and earnings below last year’s and with the expectation that next year’s sales may be lower still, will be very difficult – and perhaps impossible – to sell or finance.

As we’ve discussed in earlier editions of this newsletter, one of the biggest mistakes business owners make is waiting too long to sell their business. Since the process of selling any business can take up to a year or even longer, it’s a good idea to start planning 2-3 years in advance to prepare your business
for sale, and selecting an experienced M&A professional to assist in the process.

If you know of a business owner who’s thinking of selling or buying a business and who might benefit from a free consultation with us, have them contact me, or any of the M&A professionals at www.bradwaygroup.com.

Mike Ertel, CBI, M&AMI
The Bradway Group
813.299.7862 Direct
ertel@bradwaygroup.com

© 2008, J. Michael Ertel, PA