Company for Sale by Owner -- or Maybe Not

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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.

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