I am often asked, “How long will it take to sell my business?”  That depends on a number of things.  It’s easier to estimate the time needed for certain aspects of the selling process than it is for other aspects. I usually break down the process for selling a mid-market company into six milestones. Let’s look at each milestone, considering what it involves and how long you can expect it to take.

1. Evaluation and Presale Planning.  This is probably the hardest part of the process to estimate.  I usually recommend that you begin planning your exit many years in advance of when you will actually want to sell your business.  Many sellers are unaware of the advantages of working with a good intermediary to position the company for maximum value, and they don’t realize that the sooner you start that process, the greater the value of your business at the time of sale. Once you are ready to put your business on the market, it may take 3 or 4 weeks to perform an evaluation on the business.  It takes that long to gather and digest all the necessary information to understand and value your business and create the most effective sales strategy.

2. Packaging.  It usually takes about a month to create all of the materials needed to market a mid-sized company.  I usually create an Offering Memorandum as the primary tool to market your business.  This is similar in length to a business plan, but it has a much different purpose.  It is time consuming to write but saves time later in the process when working with multiple buyers.

3. Identifying Acquisition Candidates.  Finding the right buyer can take months and sometimes years.  If there are obvious buyers for your business, then it may take two to three months to determine if any of them are interested in making an offer.

4. Negotiating Letters of Intent (LOI).  Assuming that one or more identified buyers want to make an offer on the business, it takes 45 to 60 days to negotiate the Letter of Intent.  The buyer will rarely make a full price offer on the first pass; so you’ll be negotiating a number of drafts of the LOI before it is acceptable to all parties.  In most situations you should keep seeking additional buyers until the LOI is signed.  At that point you’ll be working with only that buyer (since most LOIs forbid you to court other buyers).

5. Contracts and Due Diligence.  Once the LOI is signed, your next steps are to negotiate the contracts and perform due diligence.  These are separate processes that usually occur in parallel, taking about 90 days to complete.  Now is also the time for the buyer to procure any third-party financing.  Most financing takes about 90 days to put in place, so if the buyer does not have financing sources already identified, this may stretch out the time to closing.

6. Closing.  The closing is when the business actually changes hands.  This is handled primarily by the attorneys and may take a day or two, depending on whether all the documentation is accounted for and there are no problems uncovered.

The upshot?  I tell clients that it may take from between nine months to a year to close a transaction on a middle market company – from the time you actually put it on the market.   On rare occasions, I’ve seen transactions that closed on tighter timeframes.  But usually these situations were the result of an industry savvy buyer coming in and making an offer the seller couldn’t refuse!  Be aware – this does not happen too often. You can hope it will happen for you, but be prepared to take the time necessary to sell your business.

A number of business owners have commented to me that they don’t need an Exit Plan because they already have an estate plan. Others have said that they don’t need an Exit Plan because they are covered by their Buy-Sell Agreement. I admit that part of Exit Planning does deal with what happens if or when you die—called Contingency Planning or creating an Emergency Exit Plan. Contingency Planning deals with what happens to you and your business if you “get hit by a bus tomorrow.”

I also realize that all entrepreneurs are immortal! Still, once in a while disaster does happen. Last year I received two different calls from attorneys on behalf of the spouses of business owners who unexpectedly died. One was in his late forties and one was in his early fifties. Neither had an Emergency Exit Plan, so both spouses were sitting in the lawyer’s office wondering what to do next. They did not even know where the checkbook was. Though admittedly not a common situation, it was sad for all involved—and there were no easy answers.

What is not usually understood about business Exit Planning is that the largest part of the planning process deals with what happens if you don’t die. If you continue living, both your Buy-Sell Agreement and your Estate Plan are useless. You need an Exit Plan to deal with the eventuality of living a long and successful life.

At some point you may to want to start to enjoy the fruits of your years of hard work. You may need to convert some of the equity in your business to support your retirement needs. For most owners, your business is an illiquid asset. How will you access the cash that is locked in the business?

You also need to plan for the time when you may not able to effectively manage the business. Did you know that 40% of all people, including business owners, retire early for medical reasons? It can happen to any one of us. How would you cope with that kind of situation? Do you have a second-tier management team ready to fill your boots if something happens? Don’t delay Exit Planning because you don’t think you need to do it now. Life’s realities indicate that you do.

Pinnacle Equity Solutions San Francisco Bay Area Exit Planning Chapter Meeting

You are invited to join us at a private breakfast on Tuesday, October 18, 2011, for the new San Francisco Bay Area Exit Planning Chapter.

This is an exclusive opportunity to network with successful Bay Areas business leaders, and hear John Leonetti of Pinnacle Equity Solutions and author of Exiting Your Business, Protecting Your Wealth speak. See the ABC interview with John Leonetti here. 

Come and see for yourself how you can expand your practice to include exit planning services  and meet the founding members of the Pinnacle Equity Solutions San Francisco Bay Area Chapter.

Who Should Attend: Accountants, insurance brokers, business brokers, closely-held business owners, financial planners, attorneys, estate planners, M&A professionals, and anyone else interested in learning more about exit planning services.

Event Details:

Tuesday, October 18, 2011 

Wendel Rosen Black & Dean Conference Center
1111 Broadway 19th Floor
Oakland, California 94607

Registration is $45.00  and begins at 7:30 a.m.

You will:

• Surround yourself, meet, and network with other business leaders in the Bay Area community.
• Learn about advanced business exit strategies and succession planning techniques.
• Understand the landscape of service providers when planning a business exit for yourself or for a client.
• Know business valuation basics and agreements required in a deal.
• Stay on top of trends in today’s marketplace.
• Grow your referral base and networking circle.

Fred Lezak, F.T. Lezak Associates

Phone:  925-360-4328

Address: 1480 Moraga Road  Suite 354,  Moraga, CA 94556

Fred provides Interim CFO and CEO services. He is a professional speaker providing seminars to financial community and keynote and subject content speeches for business conventions and meetings. Fred is an expert advising companies seeking to be acquired on financial and strategic issues

Alan Campbell, B2B, San Jose, CA CFO

Phone: 408-927-9587

Address:  6448 Pfeiffer Ranch Ct., San Jose, CA 95120

Alan has over 30 years of broad-based financial and operational experience. Alan has over 20 years of experience at the CFO, COO and Controller level in a variety of industries, including computer hardware and services, high-tech manufacturing, telecommunications, distribution and insurance.

Alan has also founded, built and sold two successful start-up companies. He knows what it is like to meet payroll and fulfill the many demands placed on the small business owner. Alan considers himself to be a business man first and finance professional second.

Elliot Kallen, President, Wealth Manager and Registered Principal,  Prosperity Financial Group

Phone: 925-314-8503 or 925-314-8504

Address: 2333 San Ramon Valley Blvd.Suite 200  San Ramon, CA 94583

Elliot Kallen is a community leader who brings more than 30 years of robust entrepreneurial experience to the financial services industry. He is a wealth manager, registered principal, and co-founder and resident of Prosperity Financial Group. Prosperity Financial Group is a boutique money management firm in San Ramon. They specialize in working with small business owners, busy professionals and forward-thinking retirees who wish to leave a legacy, improve their personal profitability and invest for the future. While living on the East Coast, Elliot built a 2,000-member international organization.

Elliot has also been included in “Who’s Who of Professionals of 2000” and Strathmore’s “Who’s Who of 2007” from working with business owners and affluent retirees. In 2003, Elliot received the Businessman of the Year Award from the NRCC Business Advisory Council in Washington, D.C., and has been featured in The Wall Street Journal. 

Edward Wenrick, Vice President at Bernstein Global Wealth Management

Phone: 415-217-8084
Address:  555 California Street, Suite 4300  San Francisco, CA 94104

Edward focuses on research based investment planning and money management for high net-worth individuals, families, and endowments. He has also leveraged Bernstein’s research based investment planning and globally integrated money management platform to provide clients with superior long-term investment success and peace of mind. Mr. Wenrick has also helped to build the most respected private client practice at Bernstein.

Andy McClure, Sherpa Business Development

Phone: 925-683-1685

Address:  P.O. Box 2786  Danville, California 94506

Andy personally acts as a virtual Vice President of Marketing and/or Sales for small businesses. He guides the marketing and selling strategy and acts as project leader to execute high-impact programs and practices. This work includes coordinating the strategy efforts of staff as well as outside vendors. Part of Andy’s team includes professional Internet Marketers who increase online sales strategy through powerful online marketing techniques. Andy is a “Rent a VP of Sales and Marketing.”

Stephen P. Tessler, Executive Vice President of Sales at California Bank of Commerce

Phone: 925-444-2933; 925-283-2269
Address:  3595 Mt. Diablo Blvd. Second Floor  Lafayette, CA 94549

Mr. Stephen P. Tessler serves as Executive Vice President of Sales at California Bank Of Commerce. Mr. Tessler joined the Bank in August 2007. Before joining the Bank, Mr. Tessler spent three years as Manager of Business Development and Marketing for Diablo Valley Bank. Mr. Tessler serves as the Chairman of Manex, Inc. Mr. Tessler has worked for City National Bank, CivicBank of Commerce and Wells Fargo Bank.

Daniel J. Donovan, Management Consultant at the Donovan Group

Phone: 510-215-1700

Address:  Home Office Box 6996  Incline Village, Nevada 89450

Daniel Donovan is a management consultant who brings a broad background and hands-on experience in implementing change to achieve long-term business growth and increased profitability. Over the past several years, Dan has managed the placement of $750 million in new and replacement refinancing, thereby allowing clients to effectively restructure and redirect their companies.

Terence Church, Principal at Morgan Miller Blair

 Phone: (925) 979 – 3388

Address: 1331 North California Boulevard, Suite 200  Walnut Creek, CA 94596

Terry Church has more than 25 years’ experience helping a broad spectrum of business and technology clients address and manage their complex licensing and commercial transactions. Terry is the Vice Chair of the firm’s Business & Technology Group and serves as a legal advisor to technology and non-technology clients, ranging from emerging growth to mature companies.  He works with clients in securing and protecting trademark, copyright and trade secret intellectual property rights.

Dick Lyons, Attorney and Partner at Wendel Rosen Black & Dean

Phone: (510) 834-6600

Email: rlyons (at) wendel (dot) com

Address:  1111 Broadway, 24th Floor  Oakland, CA 94607-4036

Dick, a  partner at Wendel Rosen, practices business and intellectual property law. Over his 30-year caree, Dick has handled M&A transactions in a wide range of industries, representing company sellers, buyers and investor. He knows the pros and cons of earn-outs, stock for stock deals, taxable and tax-free structures, covenants not to compete, recapitalizations, sales to employees and other issues specific to M&A.

He believes that a legal adviser must be practical and understand the business realities of a transaction in order to provide effective advice. He is particularly interested in seeing owner/founders be successful when they are ready to sell their companies.

As a co-founder of Wendel Rosen’s Green Business Practice Group in 2000, Dick helped Wendel Rosen become the first certified green law firm in the country. Dick is also a host of The Wendel Forum on KKGN Green 960 AM.

Elizabeth M. Engh, Attorney and Partner at Wendel, Rosen, Black & Dean

Phone: (510) 834-6600

Email: eengh (at) wendel (d0t) com

Address:   1111 Broadway, 24th Floor Oakland, CA 94607-4036

When Liz talks about estates, trusts and tax issues, the legal community listens.  So do her many long-term clients who have come to count on her advice during her over 30-year legal career in Oakland.

For years, Liz has been a voice of the Continuing Education of the Bar, lecturing annually on legal changes affecting estate planning.  She has also been chair of the Alameda County Bar’s Estate Planning section, and has been active in the State Bar’s Estate Planning Section.  Liz is a Certified Specialist in Estate Planning, Trust and Probate Law, certified by the State Bar of California Board of Legal Specialization.

Gary T. Brooks, President of Exit Plan Pros

Phone: (925) 253 – 0777

Address:  120 Village Square Suite #152  Orinda CA 94563

Mr. Brooks has over 25 years experience in the investment banking industry and has completed over 100 transactions. He also has 10 years in financial planning and company management. Mr. Brooks has been directly involved in business valuations, mergers, acquisitions, family and management buyouts, workouts, and turnarounds.

He has also been successful raising capital for growing company clients. Mr. Brooks has participated in all phases of the M&A process including packaging, marketing, negotiating, structuring and financing these kinds of transactions.  In 2006, Mr. Brooks founded Exit Plan Pros to capitalize on his experience and offer a vertically integrated exit planning advisory service to mid-sized business owners.

 Constance K. Lemon Kosla, Senior Vice President & Manager at California Bank & Trust

Phone: :415-875-1330 and 415-875-1334

                                                       Address:  465 California Street  San Francisco, CA 94104

Conni Lemen-Kosla currently as senior vice president and branch manager of San Francisco main, as well as manager of private banking for the San Rafael office of California Bank & Trust. She is the regional Manager for the Executive Market Segment for the Business and Personal Banking Division.

Ms. Lemen Kosla overseas the two branches and private banking division in Northern California. Ms. Lemen Kosla also has more than 30 years of banking and financial experience.

Brian Lewis, Senior Vice President

Phone: (925) 253- 5301

                                             Address:  2 Theatre Square Suite 322  Orinda, CA 94563

Mr. Lewis has been with Morgan Stanley and its predecessors for over 23 years.  He is the Orinda branch manager and has over 750 million dollars under management for his high net worth clients.

“Over the last 12 years, I have worked with Brian on three Exit Plans that involved M&A transactions with a total of over $22 million in value.”  – Gary Brooks

Rodger Schuester, CPA

Phone:707-557-6601

Address: 127 Patrick Ct.  Vallejo, CA 945913

Rodger provides business appraisals and forensic accounting to business litigation, estate and wrongful termination attorneys. The appraisal reports and work products are designed to meet the ever-increasing rigorous standards of the IRS and litigation environments. Rodger has served as an expert witness in numerous cases.

 *This event is sponsored by Wendel, Rosen, Black, & Dean LLP

If you follow my posts regularly, you know I often share experiences from my 25-plus years of brokering business sales transactions, usually giving all the good reasons to sell your business – that is, if you’re approaching retirement age or just ready to explore something new in your professional life.  But today I want to turn the tables a bit, and give you some reasons NOT to sell your business – at least, not right now.

So, why should you back off from the idea of putting your business on the market? Well, ask yourself whether you fall into any of these categories:

1. You’ve been “burned out” for several years now. Maybe you think this is the best reason to get out from under your business as fast as you can. But if you as the owner have been “running on fumes” for a while, I can just about guarantee you that the value of your business has dropped. It may be true that you aren’t the best person to keep managing things day to day, but my advice is to let a trusted employee take over some of your duties, or find an investor to partner with who can inject some life into the business, and focus your energies on increasing the value of your business until you can reasonably expect a profitable sale.

2. Your business has been through major changes recently. If you just embarked on an expensive R & D project or recently introduced a new product, now is not the time to sell your business. You won’t be able to show the buyer enough stability to get the best returns for yourself. You need to let the business settle in – and work with an Exit Planning professional to make sure you can document the evidence to show that your business is now positioned to grow and thrive in the future.

Tune in next post for the final three reasons NOT to sell your business.

In my last post I described an example of a solution offered to a client of mine who wanted to sell his business. Yet he couldn’t, because his long-time wealth advisor had, for many years, sold him on investments that were totally unsuited to the client’s retirement goals. I asked my own trusted investment manager, Brian, to look at the client’s portfolio and offer his expertise.  You may wonder why Brian was willing to “give away” his expert advice for free to my client just because I asked him to.

Here is how I manage my relationships with other experts.   I expect them to offer a certain amount of their time to my clients “pro bono” in return for the introductions I will be giving them.  So, for instance, when I get a trust agreement, I expect my estate lawyer to take the time to review that agreement for myself and the client, and to do so without charge.

Many Exit Planning advisors in that situation would rather rely on “fee sharing” – that is, splitting up payment from the client between all members of the team.   After all, fair is fair, right?

Well, I have found over the years that fee sharing is neither necessary to me, or beneficial to my clients, for whom I am committed to get the best possible solution in the most cost-effective manner. What I have found  is that I would prefer to take something more valuable than money from my advisors– that is their time.

As it turned out, Brian was able to offer a solution that enabled my client to sell his business quickly and retire comfortably, and Brian got a $12M account. He is very happy to provide myself and my clients services pro bono at any time.  He knows that this system will provide him, at some point, with more than adequate compensation for his time working on cases that he ultimately does not participate in.

To sum up, I think there are better value propositions for your clients besides fee sharing.  Having this kind of working relationship with other advisors, you will be:

• Giving your client access to a wide array of experts in their respective fields.
• Providing your clients with the best advice and most creative solutions available.
• Saving your client thousands of dollars in the process.

Lastly, once you let the “cow out of the barn” with respect to fee sharing, where does it stop?  Before long your client will be asking you, “How much of your fee are you willing to kick back?”

Confidentiality is of utmost importance when selling your business.  Problems can arise when customers, suppliers, or employees become aware that the business is for sale.  When the Seller represents himself there is a much greater risk that this will happen.  By utilizing a professional intermediary or Exit Planner, the Seller will receive maximum exposure to potential Buyers while maintaining the greatest degree of confidentiality.

Contact us today for a Free evaluation as to how we can help market your business in a confidential manner.

Why do I need professional advisers to help me sell my business? If this is your question as a business owner considering exiting your business, you’re not alone. I get asked this often, and I understand the dilemma.  Selling your business can seem like a hands-on project. After all, who knows more about your business than you do?  Won’t you save time and money if you handle the sale directly?  Don’t count on it. There are some very good reasons NOT to make this a “do-it-yourself” project.

Reason 1: The stakes are too high to gamble on inexperience. Would you build your dream home without benefit of an architect, a licensed plumber, or an electrician?  You could try, but you’d most likely create a nightmare that someone else would have to help clean up later – at great expense and hassle to you. Why not avail yourself of professional help from advisers who have handled hundreds of profitable transactions?

Reason 2: “Specialization” is not a bad word. You may be at the top of your industry in growing and running a profitable business, but that doesn’t mean you know how to sell a business. Can you be sure you will anticipate the financial and legal pitfalls that show up along the way?  Or the capital gains tax repercussions? Do you want loopholes in the sale documents, or an airtight deal?

Reason 3: Is the money you walk away with important to you or not? If you own a profitable business, then numbers probably matter to you. You’ve probably negotiated hundreds of times with vendors and clients just to save a percent or two from your cost or your profit margin.  Why would you be willing to walk away from a sale with less than the best possible outcome?  If a professional business broker can increase the sale proceeds by even a few percentage points, it’s well worth his or her fee.

Reason 4: Can you really afford a second full-time job? Selling a business takes a lot of time and attention. The problem I often see is that when business owners take on the process without an Exit Planning team to help, their day to day business operations suffer.  This detracts from the value of the business, and that’s reflected in what buyers are willing to offer.  In the long run, you’ll make more from the sale of your business if you concentrate on building its value while your professional advisers do what they do best – help you sell your business as easily and profitably as possible.

In my work with owners who are selling their business, I have encountered two types of buyers in most situations.  One type of buyer is out “beating the weeds” to find a company that they can buy for “nothing down and a dollar a day.”  It goes without saying that you want to avoid these.  Still, about five out of ten unsolicited strategic buyers may be qualified and have a real need or desire to make the acquisition.  Since these buyers are motivated by a genuine need that they want to fulfill quickly, they usually will not wait around for long.

I have learned to be skeptical of the many brokers and investment bankers out there who say they are representing a buyer “who is interested in your business.”  Most of these people are hunting for sell-side assignments and, in the end, are not representing a bona fide buyer.  I also discount most private equity groups that are trying to initiate deals and are solely focused on low-multiple opportunities.

Don’t be discouraged, however.  If you want to sell your business, it is relatively easy to weed out the unsolicited buyers that will waste your time.  By qualifying their financial capability and identifying the strategic reasons they are contacting you, you will soon be able to differentiate between the two types.

First, ask the buyer why they are interested in purchasing your business.  If they can show that they know exactly what your business does, that is a start.  If they give you a clear strategic reason why they are interested in buying your business, then there is a good chance that this buyer is bona fide.  Ask these questions up front, as soon as you can.  It is better to get this topic out on the table at the beginning of the sale discussion, instead of investing your time and money in a conversation that will eventually go nowhere.

So why do so many people end up having a bad experience with unsolicited buyers?  In cases where there is a bona fide buyer, if the deal goes sour, I find it is usually the seller’s fault.  This can happen when sellers are not prepared to sell their business or attempt to represent themselves in the sale.  Particularly when they have little or no experience negotiating these types of transactions.

A bona fide buyer for your business can definitely mean money in the bank; be sure you don’t let the “big fish” get away just because you are not prepared.  Start planning your Exit, today.

Many Exit Planning experts and other business consultants spend a lot of time extolling the virtues of private equity recapitalizations as a method for business owners to “take some chips off the table” while maintaining operating control of the business.  I too am guilty of this charge. I have often written about these types of “recaps” and have on occasion recommended them as a possible Exit Strategy to my Exit Planning clients over the years.

Yet there is a down side to these types of Exit Strategies that you should be aware of as a business owner thinking of selling your business.  I want to point out just a few of the negative aspects of private equity recaps:

Private Equity is the most expensive money you can find. Private equity sponsors look to grow your business to provide the return on equity on their investment.  They usually seek double digit returns that are much higher than other sources of capital such as bank borrowings.

PEGs will borrow against your assets. If the private equity group is going to acquire your business and include some equity in the successor corporation as part of the purchase price, you need to realize that they are going to leverage your assets.  In this case, the equity sponsor is not contributing capital to your balance sheet but is creating a new corporation and giving you equity in that corporation.  This is technically not a recapitalization but I mention here for a reason.  Many private equity buyers as well as investment bankers, business brokers and other advisors consider this structure a “recap” but it is not.

Why would you want a partner at this point? These arrangements may create risks with respect to the future viability of your company.  They may also require you to manage the business in a way that is counter to the way you have managed the business in the past.  Are you prepared to run “your” company “their” way?

Recapitalizing your business may change or destroy the business culture and personal lifestyle that has taken you years to achieve.  If you plan on continuing to manage your business after the transaction, it’s important to consider these and other possible problems in light of the potential upside of any deal.

If you are going to sell your business, you want to get the maximum return from the sale, right?  Unfortunately, many business owners who come to me for professional Exit Planning advice think that all they have to do is hand over their financial statements to prospective buyers, and amazing offers will start rolling in.  They know the true value of their company, and know that the buyer will be getting a great bargain.  Yet they soon discover that these prospective buyers are making extremely “low ball” offers.  This can be so discouraging that many sellers withdraw their company from the market, thinking they must to wait until the economy recovers to get the return they desire.

When I look closely at their financial statements, however, it’s clear that the problem isn’t the economy –  the problem is with the books.  If, like many business owners, you manage your business with a view to minimizing taxes, then your financials probably show as little profit as possible.  (See my previous post for a discussion of this.)  You shouldn’t really be surprised, then, when you receive low offers from buyers.  Yet, as I tell my clients, there are some ways that you, as a business owner, can “bulletproof” your business from low ball offers.

The most important issue is to clean up your financials several years before beginning the process of selling your business.  Begin managing the way public companies do – showing maximum profits.  Your goal is for your financials to accurately reflect the earnings capability of the business.  If they do, you are likely to get better offers when the time comes to sell your business.

If you don’t have the lead time to clean up your financials before selling, an experienced professional adviser can still help create new statements that show the true picture of what your business is worth.  If you are willing to invest in expert assistance to “bulletproof” your business financial statements, it will pay off well when you sit down to negotiate the sale of your company.