Harvesting and Exiting

the Venture
Sell the Business

Chapter 14
 Presentation Outline
Personal Reasons for Selling
Business Reasons for Selling
Determine the Companys Valuation
Determine Best Candidates
Tax Considerations:
What Method is Best for the Seller
Determine Best Candidates
 Personal Reasons for Selling

Investors Are Forcing You to Become Liquid

Cash-in from Entrepreneur
Disagreements
Acceptable Unsolicited Offer
Business - Burn Out
Personal Event
Poor Health
 Business Reasons for Selling

Requires Significant Capital for Growth

New Competition
Limited Opportunity
Close to Closing
Market Condition Forecasts
 Determine the Companys
Valuation

Valuation Based on Financial Evaluation

Strategic Marketing Value
 Determine Best Candidates
Strategic Buyers
Competitors
Related Businesses
Manufacturers of Related Products
Companies with Announced Acquisition Plans
Financial Buyers
Management - ESOP
Related Businesses
High Net Worth Individuals
 Tax Considerations:
What Method is Best for the Seller

Stock for Stock

Cash for Stock
Installment Transaction
 Double Taxation

Asset Sales - Corp. Tax + Stockholder

Tax
 Financial Up-to-Date

Maintain the Finances on a Consistent

Monthly P & L and Cash Flow Basis
 Prepare 3-Year Projections

by Month Actual Account Plus Future

Accounts
by Actual Product Plus New Products
by Region and/or by Store
 Know Why You Are
Selling the Company
Strategic Reasons
Growth Exceeded Management Capabilities
Diversify Net Worth
Other Interests
Getting Older - Illness - Divorce
Owner Disagreements
Investors Desire to Liquidate
 Things to Do
While Running the Business
Keep Term Liability Agreements Short
Leases - 2 to 3 Years with Options to Renew
Distributor Agreements - Short Term Cancellation
Supplier Agreements - Cancel at Your Option or in 30 - 60
Days
Keep Term Asset Type Agreements Longer
Employee Non-Compete Agreements
License and Royalty Agreements
Sales Agreements with Price Escalation
All Agreements Must Be Assignable
 A Model
for Running the Business
Develop a Prestigious Customer List
Keep a Well-Maintained Facility
Show a Continuous Growth in Sales and Profits
Develop Propriety Assets
Patents, Copyrights, Trademarks
Process Know How: Formulations and
Documentation
Develop a Well-Respected Sales Distribution Channel
In General, Do Things That Others Will Value Much
Higher Than Your Cost to Create Them
 The Actual Process of Selling
(Average Time from Beginning to Closing is Up to One Year)

Develop a List of Candidates

Choose a group of strategic buyers

Try to Play the Role of a Reluctant Suitor

Have Others Make Initial Contacts
Investment Bankers - Consultants - Brokers, etc.

Get More Than One Serious Candidate

Use Competitive Negotiation Strategies
Let All Candidates Know Others Are Interested
Negotiate An Equitable Sales Price And Related Issues
 The Actual Process of Selling
(Average Time from Beginning to Closing is Up to One Year)

Select One Candidate

Develop A Letter of Intent
A) All Equity Issues Described How Much
B) A Period of Due Diligence - 15 to 60 Days

Negotiate a Definitive Agreement of Sale

Closing