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Entrepreneur’s Adviser — Business for Sale

“Entrepreneur’s Adviser — Business for Sale”

Question: "What steps should we take to sell our company, and how do you put a price on the business?"

Answer: Look at your company through the eyes of a knowledgeable buyer. Every company has a few warts. Identify yours and clean them up. Obsolete inventory? Get rid of it. Noncollectible receivables still on the books? Write them off. Get your corporate records in order, especially your minute book, share-certificate register, open litigation files and fixed-asset ledger. These items will be closely examined.

There is a big difference between price and value. The price you hope to obtain often has little or no relation to the value. There are many methods for valuing a business. The IRS spells out eight ways in Revenue Ruling 59-60. Remember: Real value is seldom represented on financial reports. Value will often be intangible assets, such as location, distribution system, patents and people.

Estimate future cash flows that can be related to your intangible assets. Caution: The buyer’s estimate of your business value is what really counts. Give qualified and interested buyers all the data they need to tell you what the business is worth. Resist attempts by buyers to have you set a price. Even if you have a "walk-away" price in mind, make the buyer provide an offer.

Best advice: Don’t prevent a sale or lower the value of the business by slacking off and failing to run the business properly during the exit phase. ("I won’t have to worry about this much longer.") The sales process can last as long as nine to 15 months.

Adviser: Gregory B. Hadley is a consultant to small- and mid-market companies, advising them on growth strategies, enhancing value and succession/exit planning.

Submit your question via e-mail to editor@lowe.org.