Things You Need to Know About Unsolicited Offer to Buy Your Privately Owned Business
While it represents a compliment to you that someone wants to buy your business, you need to proceed with a wary eye and a questioning mind. I say this based upon a lot of years in the business of representing people in the sale of their privately owned businesses and for the following specific reasons:
* It is very rare for the owner of a privately owned business to have a realistic idea as to the true range of value of their business. Thus, an offer out of the blue almost by definition means that the owner is not able to intelligently deal with the situation unless they take the right steps to first understand the true value of their business and then to carefully and intelligently move forward from there.
* Most one buyer transactions are driven by the buyer ‘wanting to see this, that and the other’ key documents and information about a business. If everything that is asked for is given without thought, judgment and some filtering, the seller can end up in a very difficult and high risk situation of having inadvertently disclosed highly confidential information and even more importantly, disclosed information that does not portray their business in the best light.
* Virtually all unsolicited offers involve the buyer wanting the seller to finance some or a large part of the proposed transaction. However, the reality of the matter is that the seller’s best interests are to either get 100% cashed out or to get very close to 100% cashed out. If you wish to sell, doesn’t it make a great deal of sense to have some financing commitments already in place?
* One of the most fundamental issues to understand in the sale of a privately owned business is that virtually no privately owned businesses are operated in a manner to maximize the taxes that they, or their stockholders, pay. This being the case, all financial information, prior to being given to a potentially interested buyer, needs to be ‘recast’ by someone who is highly experienced and knows what they are doing, otherwise you simply put yourself ‘behind the 8 ball’, or worse, reduce to writing the fact that you have ‘fudged’ on paying taxes.
* If you accept the basic fact that your business has a ‘range of value’ {as opposed to just a single number representing value} and that the difference between the high and low values can be as much as 50%, or more --- then what are the chances of the unsolicited offer ‘magically’ being at the upper end of your ‘range of value’?
* If you understand the simple fact that most tax decisions related to the sale of businesses are ‘win-lose’ {one party pays less in taxes and the party pays more in taxes) do you really believe that your unsolicited buyer is going to voluntarily give you half, or more, of the tax benefits? Do you realize that ‘tax structuring’ can cut in half or double your net after tax dollars?
* Put yourself in the buyer’s position --- are you going to get the best deal if you are the only interested buyer, or if there is competition among multiple buyers? You don’t have to be a rocket scientist to know that intelligent packaging and marketing can generate multiple buyers, multiple offers and the high probability of greater numbers of ‘net after tax dollars’.
While the above bullet points cover a wide swath of advice and many years of experience, the best thing to do when presented with an unsolicited offer is to:
(1) Decide whether or not you wish to sell, regardless of price --- i.e. life style issues should be the order of the day;
(2) If the lifestyle decision is ‘yes’ --- then get some professional help in determining if timing is in your favor or against you, and then make a timing decision as to when to go to market;
(3) When it is time to go to market, get some professional guidance to value, package, market and represent your business --- from many years of experience I can assure you that the ‘extra dollars’ that their efforts will generate will be many fold what you have to pay them;
(4) When retaining that professional assistance DO NOT pay them any fees prior to them getting your business sold and also make certain that the representation agreement gives you the right to terminate future representation (in the event they end up not doing a good job); and
(5) Once you have other interested buyers, sit down with the ‘unsolicited buyer’ and you will then be able to do so with a ‘level playing field’.
While it represents a compliment to you that someone wants to buy your business, you need to proceed with a wary eye and a questioning mind. I say this based upon a lot of years in the business of representing people in the sale of their privately owned businesses and for the following specific reasons:
* It is very rare for the owner of a privately owned business to have a realistic idea as to the true range of value of their business. Thus, an offer out of the blue almost by definition means that the owner is not able to intelligently deal with the situation unless they take the right steps to first understand the true value of their business and then to carefully and intelligently move forward from there.
* Most one buyer transactions are driven by the buyer ‘wanting to see this, that and the other’ key documents and information about a business. If everything that is asked for is given without thought, judgment and some filtering, the seller can end up in a very difficult and high risk situation of having inadvertently disclosed highly confidential information and even more importantly, disclosed information that does not portray their business in the best light.
* Virtually all unsolicited offers involve the buyer wanting the seller to finance some or a large part of the proposed transaction. However, the reality of the matter is that the seller’s best interests are to either get 100% cashed out or to get very close to 100% cashed out. If you wish to sell, doesn’t it make a great deal of sense to have some financing commitments already in place?
* One of the most fundamental issues to understand in the sale of a privately owned business is that virtually no privately owned businesses are operated in a manner to maximize the taxes that they, or their stockholders, pay. This being the case, all financial information, prior to being given to a potentially interested buyer, needs to be ‘recast’ by someone who is highly experienced and knows what they are doing, otherwise you simply put yourself ‘behind the 8 ball’, or worse, reduce to writing the fact that you have ‘fudged’ on paying taxes.
* If you accept the basic fact that your business has a ‘range of value’ {as opposed to just a single number representing value} and that the difference between the high and low values can be as much as 50%, or more --- then what are the chances of the unsolicited offer ‘magically’ being at the upper end of your ‘range of value’?
* If you understand the simple fact that most tax decisions related to the sale of businesses are ‘win-lose’ {one party pays less in taxes and the party pays more in taxes) do you really believe that your unsolicited buyer is going to voluntarily give you half, or more, of the tax benefits? Do you realize that ‘tax structuring’ can cut in half or double your net after tax dollars?
* Put yourself in the buyer’s position --- are you going to get the best deal if you are the only interested buyer, or if there is competition among multiple buyers? You don’t have to be a rocket scientist to know that intelligent packaging and marketing can generate multiple buyers, multiple offers and the high probability of greater numbers of ‘net after tax dollars’.
While the above bullet points cover a wide swath of advice and many years of experience, the best thing to do when presented with an unsolicited offer is to:
(1) Decide whether or not you wish to sell, regardless of price --- i.e. life style issues should be the order of the day;
(2) If the lifestyle decision is ‘yes’ --- then get some professional help in determining if timing is in your favor or against you, and then make a timing decision as to when to go to market;
(3) When it is time to go to market, get some professional guidance to value, package, market and represent your business --- from many years of experience I can assure you that the ‘extra dollars’ that their efforts will generate will be many fold what you have to pay them;
(4) When retaining that professional assistance DO NOT pay them any fees prior to them getting your business sold and also make certain that the representation agreement gives you the right to terminate future representation (in the event they end up not doing a good job); and
(5) Once you have other interested buyers, sit down with the ‘unsolicited buyer’ and you will then be able to do so with a ‘level playing field’.
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