Since bankers often possess better potential contacts than most brokers do, their participation can streamline the sales process. The most successful investment bankers specialize in a short list of industries, so it pays to shop around for one with a track record and networking base that are relevant to your company.
These days, Shaw of Grant Thornton adds, "it also makes sense to look for an investment banker with the capability to sell your company internationally, because that's a growing outlet for many entrepreneurial firms." Still, he warns, "there's a big difference between an investment banker who just has an international database of prospective leads and one that has real distribution capabilities overseas." (The latter includes international offices and close affiliations with foreign investment- or merchant-banking firms.) If you think your company could attract international interest, pay special attention to that issue when interviewing bankers.
Another way an investment banker might add value is simply by accepting your company as a client. "If a well-respected banker takes your company on, then that may be a form of credential, because it's a sign to the outside world that you've been vetted by an independent expert," comments Rubenstein. "But it can be a tough call to make because some companies don't need it. We've got a client right now," he says, "who's trying to assess whether hiring someone will add or detract value from the final deal. This is a case in which the seller knows how much his company is worth, and he already knows all the possible players who might want to buy it. He can pick up the phone himself or hire someone to do it. Will an investment banker's involvement raise the price enough to justify the fee? There's no easy answer. We're trying to figure it out right now."
One final point: whether you hire an investment banker or a business broker, the issue of Internet marketing probably will be raised either by you or by your adviser. Is promoting your company's sale online a helpful strategy?
Here again, the answer depends on your company's situation. If it's small, quirky, or otherwise likely a hard sell, you can only benefit from being marketed to the broadest possible audience (so long as your Web description manages to protect your confidentiality). Growing numbers of business brokers, especially those with national affiliations, are experimenting with this advertising medium; expect the trend to continue.
Still, with upper-end deals -- the kind in which the buyers are large companies or professional investment groups rather than individuals or other small companies -- one-on-one networking matters so much that it's hard to imagine that buyers would even check out an Internet site. Rubenstein may put it best: "I will buy a PalmPilot from the Internet. But I'm not going to buy a company from it. This is one business activity that really depends upon the Rolodex, the personal contacts, and a willingness to hit the pavement."
Jill Andresky Fraser is Inc. 's finance editor.
Tax Issues
Yikes. It's complicated enough to decide when and how to sell your company. But thanks to a recent change in the tax laws, selling is now more painful than ever -- that is, if you're being paid in installments.
"The federal government used to allow sellers who received their payments over time to pay the taxes associated with the sale over time," explains Mark G. Bosswick of David Berdon & Co. "Now you can't choose to do that if you're an accrual-method taxpayer, which is the category most businesses fall into. In most cases, they've got to pay the full tax bill for the year in which the sale closes, no matter when they receive the payment."
For many small-business owners, that is a potential disaster, since they may not have the cash up front (or may not want to spend it on taxes). According to one estimate, as many as 260,000 businesses a year may be affected by the rule change.
Still, there are a couple of ways to get around the tax man. "You may be able to delay the tax bite by accepting stock instead of cash, but of course there's a risk involved, since the stock may decline in value before you sell it," says Bosswick. "You also don't achieve much in the way of diversification," he adds, "unless your investment banker designs some kind of stock-hedging strategy to accompany the sale."
An easier course of action is simply to require full payment up front. If that's your plan, shop for a business broker with proven contacts and expertise in the financing arena, so that you won't discourage potential buyers who may not have a wallet full of cash.
The Do-It-Yourself Test
Don't decide to sell your company by yourself before you answer these four questions:
1. Do you have a fairly good sense of how much your company is worth?
If not, it pays either to get an independent appraisal or to rely on a business broker or investment banker. Otherwise, you risk underpricing the company or discouraging potential buyers by pricing it too high.
2. Can you draw up a list of likely buyers?
Depending upon your company's niche, your prospects might be competitors, suppliers, strategic partners, or customers. Don't cheat here. If you really don't have a clue, you're better off relying on a professional who has already gone this route.
3. Do you really have the time to do this?
"It's incredibly time-consuming to do the networking yourself, so you've got to have the internal organization to support you," emphasizes Brendan Burns of AdOne. "The important thing is to keep your company moving forward through the whole process." If you know in your heart that you (and your staff) won't be able to manage both the sale and the company's operations, don't try to go it alone.
4. Can you do a better job than anyone else?
If you're articulate, passionate about your company, and -- above all -- not self-conscious about pitching it for sale, then the answer is probably yes. But if you suspect that your emotions or anxieties could get in the way, step aside.
Money, Money, Money
If you hire an expert to help you through the sale process, what can you expect to pay?
Business brokers
Although their fees vary, most charge a commission tied to the final sale price, generally about 10%. A growing trend among brokers is to also assess an up-front fee -- which could run as high as $10,000 -- for the preparation of marketing materials. (Tip: Beware of one scam technique in which brokers come up with wildly optimistic pricing estimates and use them to hook unsuspecting sellers into paying high up-front marketing fees.)
Investment bankers
Surprisingly enough, despite their higher level of service, most bankers charge lower percentage commissions than brokers do (mainly because they're working on deals of a much bigger scale). And there's more payment variation in this end of the marketplace. Typical fees may range from 3% to 6% of the total sale price. Performance incentives sometimes get added. On deals that are more complex (or potentially more time-consuming), some bankers charge a monthly retainer as well.
Jill Andresky Fraser is Inc.'s finance editor.
Please e-mail your comments to editors@inc.com.
