An investment banker warns sellers how to avoid potential problems and a "how to" book is reviewed.
The good news and the bad: The market for selling and buying companies remains strong. But deals -- especially those involving small businesses -- often take a long time to close (sometimes as much as a year). Worse still, delays are often caused by problems that could have been avoided if sellers and buyers had taken basic precautions.
"The biggest thing a seller can do to make certain that a transaction proceeds smoothly is to adequately prepare the company's financial statements," emphasizes Robert Garrett, president of AdMedia Corp. Advisors, a New York City investment-banking firm. What's adequate? "A complete set of financial documents, going back two years at least, that accurately and fully represents the company's current business condition."
Company owners have a choice here: those financial statements can be audited or simply reviewed by an accounting firm; or they can be compiled by the company's staffers. But audited statements offer sellers the best hope of speeding a deal along. "With audited numbers, the buyer knows that your financials are accurate and doesn't have to waste time recalculating them."
Closings can also grind to a halt when a seller doesn't prepare interim financial reports. "Those reports don't have to be audited, but they do have to give the buyer a sense of the company's financial condition," Garrett notes. "If the company has warts, there's no point trying to hide them. A buyer will discover them during due diligence, which could send you back to square one."
Other causes of slowdowns? "Often a seller enters negotiations without having worked out the bottom line, the actual after-tax compensation he or she wants. That's a problem because different deals -- and deal structures -- can have different tax implications." Deals fall apart, Garrett says, when the tax bite gets calculated too close to closing and the selling price no longer looks adequate.
Do buyers ever create problems? Inflexibility is the biggest culprit, says Garrett. "A buyer starts dictating payment terms, which can put a seller's back up against the wall. Or the buyer adopts a heavy-handed attitude that leaves the seller feeling unappreciated, as though the buyer doesn't respect everything the seller's achieved." In those cases, expect your investment banker to step in and mediate. Experienced investment bankers can make peace as well as deals.
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For other useful tips on how to prepare for the sale or acquisition of a business, a good place to look is The Secrets to Buying and Selling a Business (Oasis Press, 800-228-2275, 1994, $19.95). The 266-page paperback by Ira N. Nottonson, a lawyer and business owner himself, offers a good mix of legal advice, financial checklists, and practical business strategies (including tips on controlling your body language!).