Corrections or additions?
This article by Bart Jackson was prepared for the July 11, 2001
edition of U.S.
1 Newspaper. All rights reserved.
Your Baby on the Block
Since you and your husband mortgaged your home to start
your firm on a shoestring, you have never missed a day at the office.
Every morning — 6:30 a.m. until whenever. It seems inconceivable
that you would ever sell, but finally the time has come. The trouble
is, all your mighty sweat equity will undoubtedly blur the
perceptions.
How can you put a price on all those years?
To help business owners disentangle their heartstrings from their
purse strings, the Venture Association of New Jersey (VANJ) presents
a true nuts and bolts seminar entitled “What’s your business
really
worth? Maximizing your company’s assets” on Tuesday, July 17,
at 11:30 a.m. at the Westin Hotel in Morristown. Panelists include
Frank Hellstat, a merger negotiator based in Phoenix, Arizona;
attorney Christine Marx of Princeton firm Duane, Morris and
Hecksher; and Angelo Ciullo, partner in Morristown accounting
firm Trien Rosenberg. Cost: $45. Call 973-267-4200, ext. 193.
For over 20 years, panelist Ciullo has watched the deals rise and
fall. A native of Italy, he settled in Westfield, gained an accounting
degree from Seton Hall, and went to work for Merck. Later, as a CPA,
he moved into private accounting firms, where he specialized in
mergers.
Since 1990 he has worked with Trien Rosenberg. “It all comes down
to a question of perspective,” Ciullo says. “The buyer of
a business is not only seeing a different item than the seller, he
envisions an entirely different way of paying for it.” Thus it
becomes the seller’s job to dress up his firm to suit a buyer’s taste.
And, Ciullo says, myriad are the methods of dressing your business
up. Here are a few:
Hire the right professionals. Most business owners areentrepreneurs who are used to handling things themselves, and don’twant some slick know-it-all prying in and taking a cut. This, saysCiullo is probably the biggest seller’s blunder possible — andthe most common.He says that even for a small firm it is worth hiring an outside teamto set your business handsomely on the block. The most basic teamshould consist of an accountant — not yours — to do basicvalue assessments. An experienced merger attorney is also necessary,says Ciullo, but invite them only at the end of the process —never the start. Lawyers tend to be expert deal breakers, he says.It’s their trade. Better to get your options and plans assembledfirst.The team’s third member is frequently the most valuable, yet moststubbornly resisted by the seller: A professional dealmaker or mergernegotiator charges a fee that almost invariably profits the ownermany times over. Far more than a facile-tongued chat man, thenegotiatorcan help you present your firm optimally and very frequently he hasa strong network of buyers on the shelf.Get an outside audit. If yours is a small firm, with$100,000annual volume, perhaps the cost of an outside audit is too high. Butfor larger companies, such a move shows the buyer that you have athorough handle on you business’s worth. A solid review of yourrecords— presented at the ready to a buyer — gives him the feelingthat yours is not a dart board asking price.Recast your assets. When it’s time for cash on the barrelhead, your buyer will come in and meticulously analyze your everyasset. Beat him to the punch. Review salaries that might be excessive.Shed excessive real estate. But don’t fall into the streamlining rut.Take that high salaried employee and let her take that long-wantedfling at a new, impressive venture.Prove your growth value. “Look like a rabbit,”advises Ciullo. “Don’t appear like a turtle who is pulling hishead in. You’ve got to convince these buyers that you are movingforward.”Even if your value has dropped a bit, advance your aggressive posture.Develop or strengthen new business alliances to enhance your customerbase. If you have 10 veteran salespeople, this may be the time tohire two youngsters. Show buyers they’re hitching their wagon to ameteor, not a tree stump.Dress up your offer. “The true value of a businessis driven by its terms,” says Ciullo. Typically, an owner wantsto take away about a third of the sale in cash. She prefers to sellstock so she can take the profit as capital gains (a relatively low20 percent) and at the same time, remove herself from all liability.Buyers on the other hand, often seek to lock the seller into afive-yearcovenant of assured growth and pay by promissory note with paymentsscaled to profits.The trick here is to hint at deal restructuring. For example, buyershate real estate. They don’t enjoy the idea of plunking cash up front,and hate thinking of being tied to you as an endless tenant. So adjustthat to a five year rent-to-buy option. Also, the reality of cashis that it automatically lowers the business’s value. If your buyerinsists on a growth clause, sweeten the deal by taking less up frontin return for a percentage of the future pie for a few years. Yourassumption of upcoming profits should appeal to the buyer.Ah, but finally comes the toughest question: is now a good timeto sell? Certainly more than a few investors got woefully avalanchedin the collapsing E-commerce money pits. That makes this a tough timeto find a good buyer, right? Not so, according to Ciullo, who saysthe E-commerce lesson has sent investors back to basics. Many haveabandoned gut hunches and are scrutinizing cash flows and projectedearnings based on historical data. “Besides,” he quips,”We’vegot a lot of money with a lot of investors scared of the stock market.If you dress yourself up well, they might just take it off the shelffor you.”— Bart JacksonPrevious StoryNext StoryCorrections or additions?This page is published by PrincetonInfo.com— the web site for U.S. 1 Newspaper in Princeton, New Jersey.
