What to do before selling your company
Here's a checklist of preparatory actions
For various reasons, private duty company owners may decide their best ownership succession option is to sell the firm. Experts offer these tips to maximize your firm's value and facilitate a smooth and successful transition:
1. Develop a comprehensive business plan.
Assess your company's position, its competition, and forecasted future growth, says Fred Roa, president and chief executive officer of Telesis, a home care business brokerage firm based in Franklin Lakes, NJ.
Such a review will help you better understand, and better present, your business's current strengths and potential to buyers, says Russell Strand, CPA, CFP, a financial planner with Planning Advisors Limited, a financial advisory firm based in Bethesda, MD. "You have to understand your business to sell it," he adds.
2. Improve organizational performance.
Upgrade your clinical, patient accounting, and financial information systems if they are not already state-of-the-art, Roa advises. Take steps, as well, to enhance productivity and reduce overhead. Address any issues - such as unfavorable contracts - that need attention and may be obstacles for a purchaser, says Robert Fowler, CMC, a management consultant based in Atlanta, who specializes in advising executives of closely held companies.
3. Be realistic about your firm's value.
"Sellers often have unrealistic expectations. They think they're sitting on a gold mine [but are not]. The business usually represents 80% to 90% of their retirement [funding] and net worth," so they naturally want to get as much for their companies as they can, says Fowler.
Many sellers, however, try to force the firm's value into the box of a dollar amount they want for their retirement. "A seller will say 'I must have $1 million net! Net! Net!' [That is the same thing as saying] 'I don't care what the business is worth, I just want 'X' amount.' But the seller will get a fair price for what the company is worth," Roa says.
4. Beware of phenomenal offers.
Offers that sound too good to be true probably are, warns Gene McClure, a health care attorney based in Atlanta. A wily or poorly prepared buyer may make an initial offer that he or she either does not intend to honor or cannot follow through on. In the meantime, the buyer continues going through the due diligence process and "gets the seller in. And then employees and the market find out, and it gets you over a barrel and you feel compelled to sell [at a lower price]," he advises. (See related story on firm valuation, p. 122.)
5. Closely watch advisor terms and fees.
Attorneys, consultants, business brokers, and tax advisors may all play a role in the sale of your business. Closely evaluate their engagement terms and fees, McClure advises. Watch trailing fees that cover future transactions regardless of the individual involvement.
6. Require confidentiality.
Before engaging in any sales discussions, enter a confidentiality agreement with your potential purchaser that covers all financial and operating information and requires return of all disclosed documents, McClure advises.
7. Know your buyer.
While the buyer is sure to conduct due diligence to substantiate that your operations are sound, you should also review his or her financial situation and determine what, if any, deals he or she has been involved in, McClure advises.
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