Time To Sell
The decision to sell your business is one of the most important decisions you will ever make. How do you prepare your business for sale, present it in its best light, find the right buyer, structure it properly and maintain confidentiality throughout the entire process?
Del Lingco International has successfully represented thousands of business sellers since its inception in 1958 and we are here for you.
Without a doubt, the most important aspect in selling your business is confidentiality. Premature disclosure to employees, customers, competitors, suppliers, lenders and the general public can only have a detrimental effect on the business and the resulting value of it. Del Lingco will employ strict procedures to control disclosure until you’re ready. There is no reason for anyone to know until after closing.
Recasting your financial statements
The first step in the selling process is for your Del Lingco associate to recast your financials. This is done after an extensive meeting where we get to know you and your business. We know your income statement is prepared to reduce income and therefore taxes. For example, a business may show a non-cash expense such as depreciation in excess of what would be necessary for a reasonable replacement fund. Also, the owner may be receiving a salary that is either too high or too low for the work being performed. Both of these situations require adjusting the financials to show a buyer what he or she could make from the business. Another adjustment is required for interest expenses since the new owner will have a different debt and equity structure than the current owner. There will probably be other expense items requiring adjustment, which are not necessarily important to the business operations but are considered important to the owner as additional benefits or compensation.
Also, the balance sheet will typically require adjustment. The book value of furniture and equipment may be almost fully depreciated but has a much higher fair market value. The balance sheet may also show other assets such as franchise fees or real estate at cost, which may have actually appreciated in value. However, there may be other assets as well as liabilities, which should be eliminated because they are not essential elements of the business operations. These and other adjustments are made to more accurately reflect the true fair market value of the assets, and the income statement is made to show the real profit potential to a new owner/operator. All of these steps enhance the worth of the business and are intended to maximize the proceeds for the seller. Del Lingco has the expertise and the experience to get you the most cash for your business.
Finding the Right Buyer
The key to finding the “right buyer” and getting the most value for your business is maximum exposure to qualified buyers. Del Lingco maintains a large database of pre-qualified buyer/prospects, which is constantly updated through extensive advertising, participation in various networks, websites and through a large referral source of bankers, attorneys, accountants and other business intermediaries.
Mergers and Acquisitions
The sale of mid-sized and larger businesses is frequently purchased by other businesses or corporations. Depending on the size, complexity and nature of your business and industry, Del Lingco may market your business to the following logical acquirers:
Market-Extension Merger or Acquisition
This is when a similar company in a different market buys a company in a target market to gain market share or penetration. Premium prices and values are possible due to the economies of scale enjoyed by the resulting union.
Product-Extension Merger or Acquisition
This is when a functionally similar company buys a business with a product line, which will complement the acquiring company. For example, a wholesale produce company buys a wholesale frozen food business. They functionally do the same thing and may sell to the same customer base. The resulting synergistic integration allows for premium pricing and value.
Vertical Merger or Acquisition
This is when a company vertically integrates with a company usually “cutting out” the middleman and duplication expenses. For example, a manufacturing company buys a retail operation that sells the same product line as the acquirer. This is the current trend in American business. It, too, allows for premium pricing and value.
Conglomerate Merger or Acquisition
Some acquirers adhere to the philosophy that a wise investor diversifies his portfolio and thereby reduces his risk. This is the thinking of this type of investor. Certain management and overhead expenses can be reduced but to a lesser degree than our other examples. This is strictly a “buy by the numbers” type buyer and usually will not pay the premium or realize the value as the other examples mentioned above.
Horizontal Merger or Acquisition
This is a buyer who is in the same or similar industry and may be a direct competitor. This avenue would only be pursued after discussions with the seller. Usually, this is not the best buyer for a profitable business but rather for liquidation purposes. Horizontal acquirers usually pay the least.
Sellers should understand that value is based on the anticipated profits the buyer hopes to realize. Only through careful analysis and understanding of all the hundreds of variables associated with business buying and selling can the maximum amount of seller proceeds be realized. For many years Del Lingco has been an industry leader and knows well the intricacies involved in business transfers.
Call today for a confidential meeting to discuss your business needs and desires. We are here for you.