If I Were Selling a Firm Today
Oct 16, 2006
We’ve been at this business for some time now— and have worked with hundreds of A/E/P and environmental firms whose principals wanted to sell. Unfortunately, we can’t help all of them— just those who will listen. I have also bought and sold a number of houses and, believe me, there are many parallels with the firm selling process. Just like many houses I see for sale, not every firm for sale is in “move-in condition.” That increases its “days on market” and reduces its price. Many owners don’t want to hear it and won’t do what’s needed to have a truly saleable company.
With this being our special issue on mergers, acquisitions, and sales, I thought it might be appropriate to pass on 10 things you really need to do if you are serious about selling your company and cashing out:
Get completely clear on which of your principals will stay— and for how long—and who will go if you sell the company. This is extremely critical and cannot be ignored as any buyer needs to know this information. It will impact everything— price, terms, and whether or not you can sell it, period.
Get your books in order. If your accounting is not up to date, get it up to date. If you have all kinds of personal expenses buried in the company financials, clear them out. No one can consider buying your firm without being able to see how you are really doing now. And having a bunch of personal expenses buried in the financials only makes the firm look like it performs worse than it really does and this will drive your value downward.
Add some curb appeal. A little spit and polish in the form of painting the offices, getting better signage, cleaning up everything, making the web site look better, and more. A graphic image overhaul may be needed as well. These things help make a better first impression on any potential buyer.
Build your “sale team.” Have appropriate people from inside the firm on the team. Appoint one person as the primary traffic manager to deal with requests for information. And don’t forget qualified outside advisors such as an attorney who is experienced in buying and selling similar-sized businesses, qualified tax advisors, and your business appraiser (see point No. 6 below). Note— most often, your “regular” outside counsel and accountants are NOT suited for these roles, though they may have others in their firms (if their firms are large enough) who are. Proceed with caution here. The wrong team will blow a deal or, worse, get one that shouldn’t have been consummated.
Level with those you need to tell about the potential sale and don’t tell anyone who will just be alarmed. This is always tough and there’s no simple way I can tell you who or who not this should be. But you need to consider long and hard whether or not someone has to be brought into the loop. Knowing the firm could be sold may impact whether or not he or she stays with the company while it goes through a sale.
Get a thorough appraisal done by a qualified business appraiser and then be realistic in your expectations of what you can get for the company. Again, my best advice here is find a firm or appraiser that specializes in this industry. Anyone else will miss the mark, just as the wrong residential real-estate appraiser can ruin your refinancing chances, the wrong business appraiser can ruin your chances of selling the firm OR end up misleading you about its value. You get what you pay for in appraisers as well.
Make sure your corporate bylaws and buy-sell agreements will allow you to sell. I have seen this problem recently in a firm. They simply cannot consider any outside sale opportunities, period, as unanimous shareholder approval is required to sell the firm, and the odds of that ever happening with as many shareholders as they have are extremely low.
Know exactly what clients and employees are probably not going to stick around and disclose every one of these situations to the buyer. Disclose every liability and potential liability when the time is right. Your warranties and representations are extremely important and will be a major negotiation item. Why set the stage for a disgruntled buyer to sue you after the fact by being anything less than completely forthright? It’s just not worth it.
Untangle your real estate from the business, if you can. Most buyers do not want to be married to your office building. There are many reasons for this. So, if you own a building in the company, sell it to a smaller group of owners or outsiders and lease it back for a fairly short-term so the buyer has flexibility to combine your operations with theirs or to move elsewhere to a better/cheaper/more convenient space.
Be patient with the process— but not too patient. When you get a serious buyer, work out a timeline with them on how the deal could get done. Then, do all you can to get it done within that timeframe. Don’t just allow it to go on forever as you will hate the limbo your firm is stuck in and it will undoubtedly hurt your growth and profitability if things drag out too long.
Looks like I am out of time. Write in with your additions to my list, and I will get back to my work prepping an old house I’m redoing now for resale!
Originally published 10/16/2006
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Zweig Group, three times on the Inc. 500/5000 list, is the industry leader and premiere authority in AEC firm management and marketing, the go-to source for data and research, and the leading provider of customized learning and training. Zweig Group exists to help AEC firms succeed in a complicated and challenging marketplace through services that include: Mergers & Acquisitions, Strategic Planning, Valuation, Executive Search, Board of Director Services, Ownership Transition, Marketing & Branding, and Business Development Training. The firm has offices in Dallas and Fayetteville, Arkansas.