PPB July 2016

made to transition the customer

relationships to company per-

sonnel through a customer

retention strategy in order to

reduce dependence on individ-

ual salespeople.

SALESPERSON RELATIONSHIP:

Continuity of salespeople from

owners to buyers is a critical issue

that buyers must become com-

fortable with. Several tools can

help mitigate buyers’ concern:

• Employees or independent

contractors.

Employee sales-

people tend to be more likely

to remain engaged after an

acquisition than independent

contractors who are free to

move on. The burden falls on

buyers to influence whether

independent contractors

remain with the company after

the sale.

• Contracts with customers

help assure future sales.

• Non-compete Agreements.

This topic always stimulates

conversation about how

“enforceable” such agreements

might be. Each state is differ-

ent and this article is not

meant to be a legal analysis.

However, without a doubt, it is

better to have reasonable non-

compete agreements than not.

All employees should sign

them on the date they begin

employment whether they are

salespeople or work in the

office.

• Commission Policy.

Commissions must be paid at

a sensible level and consistent

between all salespeople; no

special deals. Buyers insist that

all commissions are paid under

the same terms and are reluc-

tant to change excess commis-

sion rates for fear of alienating

salespeople who have been

spoiled by owners.

• Policy & Procedures Manual.

Buyers want to be sure they

understand how salespeople

obtain and process orders,

under what credit terms, from

what suppliers, etc.

Unfortunately, salespeople

tend to function their way if

no formal policies exist. That

creates another potential

future conflict between buyers

and the sellers’ salespeople.

BUSINESS PLAN:

Many owners do

not complete a business plan for

their companies. However, to

the extent that owners have a

business plan and can demon-

strate how the plan is working, it

can build confidence in buyers

that the employees and salespeo-

ple are focused on a plan that is

working well.

The Next Steps

In addition to preparing the

information buyers are looking

for, there are a number of actions

owners should take in the years

before they plan to sell their

companies.

Business Valuation:

Owners often decide they

want to sell their compa-

nies, but have no idea what they

are worth. They probably have a

portfolio on which they check

the value daily and a house for

which they have a pretty good

idea of worth. However, their

companies are probably their

most valuable assets. A valuation

FOUR THINGS

THAT

DON’T

ADD

VALUE TO A

POTENTIAL SALE

The owners’ tenure in the industry.

This can actu-

ally be an indictment of owners whose companies

aren’t prospering despite “30 years in the industry.”

Higher sales levels two or three years ago.

Only

sales in the past year/12 months are relevant. This

is one reason a succession plan is important; to

sell when revenues are up, not two years later.

Investments the buyer will make.

“If a buyer

provides capital, the company will grow substan-

tially.” That may be true, but buyers are not going

to pay value to sellers for positive results that buyers

expect to realize from their efforts and capital.

Intellectual properties, customer industry

niche, industry awards, proprietary products

and services.

Such qualities may increase the

confidence buyers have in investments, but their actual

value is determined by the companies’ sales and profit

performance.

MANAGE

MENT

JULY 2016 •

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