PPB August 2016

MANAGE

MENT

By definition, a good deal

implies some buyer pays you a

lot of money for your business.

While it is true that the financial

reward of selling your company

is important, there are other fac-

tors to consider as well. Think of

it as a package deal with money

being only one component.

Others factors could include deal

structure, payout structure, your

role after the sale, involvement of

family members who work in the

business, what happens to

employees, what happens to cus-

tomers and the list goes on.

PLANNING FOR A GOOD DEAL.

Successfully selling your promo-

tional products company requires

thoughtfulness and planning. It’s

a process that does not happen

overnight. We tell clients to

allow six months for the sale

process. Some transactions take

less time but many take longer

depending on the company and

any unique requirements of the

seller. If the owner/seller is a key

salesperson, their post-closing

involvement could be three to

five years, possibly longer; so

plan accordingly.

Planning also includes deter-

mining what advisors will be

required to accomplish the sale.

Sellers should consult their tax

accountant for advice on the tax

ramifications of selling. It is

always better to be proactive and

understand the tax situation well

in advance of the sale. Also, be

prepared to engage an attorney

to review purchase documenta-

tion. Attorneys serve an impor-

tant role in the process but keep

in mind that their job is to give

legal advice while yours, as seller,

is to use that advice to make an

informed business decision.

Finally, someone acting as an

intermediary can also be impor-

tant to the process. Negotiating a

transaction can be tense at times

and it’s important to have some-

one who can wear the black hat

so as to maintain a good rela-

tionship between the buyer and

seller. This is especially true

when the buyer and seller will be

working closely together after

the sale is complete.

COMPLETE A BUSINESS

VALUATION.

It is impossible to

know if a buyer is offering you a

good deal if you don’t know

what your company is worth.

Most people have an idea of

what their homes are worth or

even their cars, but many don’t

have a clue on the value of their

business. In many cases, the

business may well be their most

valuable asset. A business valua-

tion is critical to the selling

process. Anyone considering the

sale of their business should

have a valuation completed.

Frankly, having a valuation per-

formed, even if a sale is not

imminent, is an important step

for a business owner to take in

order to understand what their

company is worth.

DEFINE SPECIAL REQUIREMENTS.

Once the valuation is complete

and realistic value expectations

have been set, it’s important for

the seller to define any additional

requirements he or she may have

with respect to selling the busi-

ness.

• How long does the owner

want to remain involved with

the operation post-closing?

• What are the requirements for

continued employment of any

family members involved in

business?

• Are there any requirements of

the seller to keep all or certain

employees employed for a spe-

cific length of time?

• Is there a requirement to keep

the business in its current loca-

tion for a certain length of time

or is relocation acceptable?

These issues and others like

them should be brought to the

buyer’s attention early in the sale

process to avoid confusion and

wasting time. That said, seller

flexibility and compromise on

issues such as these can be key to

successfully closing a transaction

in a timely fashion while maxi-

mizing deal value.

DEAL STRUCTURE.

Arguably,

structure is as important to a

transaction as overall deal value.

Sellers want a structure that calls

for timely collection of deal pro-

ceeds with favorable tax treat-

ment and an acceptable level of

risk. Following are several com-

ponents of deal structure you are

likely to see in a sale transaction.

Asset Purchase vs. Stock

Purchase.

Asset purchases

are the norm for S corpo-

rations and LLCs, while stock

deals are preferred by C corpora-

tions. Of the two, asset purchases

are by far more common. Buyers

and sellers alike enjoy certain tax

benefits associated with the pur-

chase of assets. Buyers will gen-

erally be able to deduct the cost

of the acquisition over time, but

the key for sellers is that any

gain associated with the sale

receives capital gains treatment

instead of being taxed as ordi-

nary income. This typically

reduces the tax liability and

increases value for the seller.

Cash At Closing.

There

should be some element

of cash at closing in vir-

tually every transaction. The level

depends on how risky the invest-

ment is to the buyer. Growth

trends, profit trends, margin

strength and concentration risks

can all have an affect on how

74 •

PPB

• AUGUST 2016

THINK

It is impossible to

know if a buyer is

offering you a

good deal if you

don’t know what

your company is

worth.

Most

people have an

idea of what their

homes are worth

or even their cars,

but many don’t

have a clue on

the value of their

business.