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


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


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


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 are

entrepreneurs who are used to handling things themselves, and don’t

want some slick know-it-all prying in and taking a cut. This, says

Ciullo is probably the biggest seller’s blunder possible — and

the most common.

He says that even for a small firm it is worth hiring an outside team

to set your business handsomely on the block. The most basic team

should consist of an accountant — not yours — to do basic

value 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 assembled


The team’s third member is frequently the most valuable, yet most

stubbornly resisted by the seller: A professional dealmaker or merger

negotiator charges a fee that almost invariably profits the owner

many times over. Far more than a facile-tongued chat man, the


can help you present your firm optimally and very frequently he has

a strong network of buyers on the shelf.

Get an outside audit. If yours is a small firm, with


annual volume, perhaps the cost of an outside audit is too high. But

for larger companies, such a move shows the buyer that you have a

thorough handle on you business’s worth. A solid review of your


— presented at the ready to a buyer — gives him the feeling

that yours is not a dart board asking price.

Recast your assets. When it’s time for cash on the barrel

head, your buyer will come in and meticulously analyze your every

asset. 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-wanted

fling at a new, impressive venture.

Prove your growth value. "Look like a rabbit,"

advises Ciullo. "Don’t appear like a turtle who is pulling his

head in. You’ve got to convince these buyers that you are moving


Even if your value has dropped a bit, advance your aggressive posture.

Develop or strengthen new business alliances to enhance your customer

base. If you have 10 veteran salespeople, this may be the time to

hire two youngsters. Show buyers they’re hitching their wagon to a

meteor, not a tree stump.

Dress up your offer. "The true value of a business

is driven by its terms," says Ciullo. Typically, an owner wants

to take away about a third of the sale in cash. She prefers to sell

stock so she can take the profit as capital gains (a relatively low

20 percent) and at the same time, remove herself from all liability.

Buyers on the other hand, often seek to lock the seller into a


covenant of assured growth and pay by promissory note with payments

scaled to profits.

The trick here is to hint at deal restructuring. For example, buyers

hate 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 adjust

that to a five year rent-to-buy option. Also, the reality of cash

is that it automatically lowers the business’s value. If your buyer

insists on a growth clause, sweeten the deal by taking less up front

in return for a percentage of the future pie for a few years. Your

assumption of upcoming profits should appeal to the buyer.

Ah, but finally comes the toughest question: is now a good time

to sell? Certainly more than a few investors got woefully avalanched

in the collapsing E-commerce money pits. That makes this a tough time

to find a good buyer, right? Not so, according to Ciullo, who says

the E-commerce lesson has sent investors back to basics. Many have

abandoned gut hunches and are scrutinizing cash flows and projected

earnings based on historical data. "Besides," he quips,


got 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 shelf

for you."

— Bart Jackson

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