Is it something in the air? Or is it Nashville’s unprecedented growth? More local businesses are receiving unsolicited offers from buyers than anytime I can remember. Let’s look at key considerations in assessing these offers.
Start with an open mind. Too often, business owners think of their business as a child they've raised from birth. It’s hard to consider giving up part of the family. But a business is not a child. If the offer is right, a sale might be a great opportunity.
The offer will probably be some multiple of cash flow. The multiple will generally range from two to seven times annual cash flow, depending on the historic and expected growth of the industry and characteristics of your individual business. You might have to pay off the business’s debt from the proceeds.
If the offer is interesting, you can accept it, negotiate for a better price or shop for other proposals. Shopping the business, even with a broker, can take considerable time and effort away from running your business. There’s no guarantee you’ll get a better offer. Employees will become concerned about their future since the process is difficult, if not impossible, to keep secret. Evaluate the pros and cons of accepting, negotiating or looking for a better offer.
Is the offer for cash, stock in the acquiring company or a combination of both? If stock, are there restrictions on selling the stock? Is there a delayed payment schedule or is it cash at close?
If you turn down the offer, will the buyer find an alternative? If the buyer enters the market and undercuts your prices, they can take some of your customers. Even worse, if the buyer is a customer wanting to expand vertically, you will surely lose business if they find a willing seller or duplicate your business in-house.
The buyer might require an employment agreement obligating you to stay and help in the transition. Also, expect a non-compete clause to prevent you from working in a similar business for a period of time.
It's not all about price. What happens to your health insurance, vehicle and other perks? What will you do with your time? You might volunteer at SCORE to mentor other business owners. Or maybe you’ll start another business or get a job.
You will need professional accounting advice since the method and timing of payments can greatly affect your tax liability. And don’t even think of closing a sale without a lawyer experienced in business acquisitions.
An unsolicited offer makes you think of your business in a new way. Whether to sell or keep your business has psychological, personal and financial ramifications. Which answer is best for you?
Ed Rappuhn is a mentor, workshop facilitator, and the past-chair of SCORE Nashville. SCORE mentors guide entrepreneurs in starting and growing their businesses. Sign up for a free SCORE mentor, find out about our reasonably priced workshops and other services, or volunteer to become a SCORE member at www.scorenashville.org.
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For additional information regarding Florida business sales, acquisitions and valuations, please contact Eric J. Gall at Eric@EdisonAvenue.com or 239.738.6227. Also, visit our Edison Avenue website at www.EdisonAvenue.com or my personal website at www.BuySellFLbiz.com.
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