Looking to sell your family-owned business? Remember this: Buyers are more interested in data points that could reveal future earnings rather than those that show how you’ve done in the past.
That was one of the key takeaways for the recently held virtual event, “Is Now the Right Time to Buy, Sell or Invest in a Family-Owned or Closely Held Business?” The event was run by the Commerce and Industry Association of New Jersey.
Mike LaForge, a member of SobelCo, Cindy Myer, president of Ridgewood Moving Services, Franco Pietrafisa, partner at Archer Law and Alan Scharfstein, founder and president of the DAK Group offered insights on what companies need to do to prep themselves for sale.
Any company looking to sell needs to make an accurate assessment of future risks.
The future risks include anticipating activities by customers and vendors in addition to the employees.
Myer shared that she prepared documents and a strategic plan to deal with several “what if” situations along with building a “dream team” that can help her propel the company into the future.
When and how should every business owner prepare for the possible sale of the company?
The presenters agreed that preparations should begin anywhere from one year to 18 months to two years in advance. LaForge, a CPA, listed 10 steps that a buyer can, and should, perform to present a compelling balance sheet that demonstrates the true value of the business. Among the 10 items he included were practical suggestions including presenting accurate accounts receivable, accounts payable, fixed assets, working capital, inventory management, nonbusiness assets, excess cash and other similar categories. As LaForge was outlining adjustments that can be made to the balance sheet, Pietrafisa, an attorney, added that there should also be a detailed review of all books and records and contracts added to the seller’s “to-do” list.
Scharfstein said, “You need to run your business as if you will own it forever, but nonetheless be ready to sell it tomorrow.” LaForge added to that insight, saying timing is critical. Analyzing all the indicators is a key first step, but understanding the specific circumstances and the industry trends are equally as essential. The presenters offered some key questions that should be asked when anticipating a business sale.
- Will the owner be ready when opportunity knocks on the door unexpectedly?
- Is the current owner financially and psychologically ready to sell?
- Are the family members and employees ready?
- Will employees remain loyal?
- Will employees sign noncompete clauses?
- Will key operating people sign nonsolicitation clauses?
Scharfstein noted that buyers are typically more interested in the company’s future than in its past performance.
What is behind the hot M&A market?
Even throughout the COVID-19 pandemic, these experts found the mergers & acquisitions market to be vibrant — more so than ever before. Whether looking to identify a strategic buyer to support organic growth, selling to a private equity firm or selling to a non-U.S. buyer, many deals have been finalized in a virtual setting since 2020, contributing to the fact that the M&A area is busier than ever.
Last words of advice
Pietrafisa offered a word of caution to all sellers that “everyone has some skeletons in their closet.” Sophisticated buyers will figure it out, he said. With this in mind, he strongly suggested that sellers face any challenges early on to avoid them becoming a deal-breaker. With the pandemic encouraging earlier sales than might otherwise have taken place, and a younger audience of interested entrepreneurs (with many in their 40s to 50s), the time is right for many as they seek to participate in a robust M&A environment where so many opportunities abound.
LaForge reiterated that, even in a strong market, no buyer is interested in a company with a weak balance sheet coupled with few strategies in place to leverage a strong economic landscape. So, leaders and their management team should clean up their balance sheet in advance of the decision to sell.
Myer noted that she created a succession plan long before she needed one, but she wanted her employees, vendors, advisers and family members to be ready under any situation.
“Being proactive and ready for all the circumstances is an important part of any exit strategy,” she concluded.
Finally, Scharfstein added that the pandemic has impacted the decision-making of some buyers — creating a culture where buyers are stressed, experiencing COVID fatigue and weary of the challenges that have hit every sector focus. The end result is a greater eagerness to exit now, rather than wait.
Sally Glick, well-known in New Jersey business circles, has become a contributor for ROI-NJ.