How to Prepare for the Unsolicited Offer

by

Joan M. Gruber Ridley, CFP

Business owners are often surprised and unprepared when an unsolicited suitor approaches with the intent of making an offer. A typical reaction is flattery, and then defensiveness and fear, not to mention greed. A well-prepared seller is in a position to recognize a serious offer that merits further consideration. Here are a few steps you can take to prepare for the inevitable unexpected offer.

Be Receptive

Be receptive, regardless of the terms offered. From a prospective buyer’s standpoint, any company is in play if it has something the buyer wants.

Be Realistic

Your business is worth only what a ready, willing, and able purchaser is willing to pay. A serious buyer, rather than the seller, determines what a business is worth in the marketplace, although your business could be worth more to one buyer over another. Know what top dollar is.

Be Flexible

If an offer is presented long before you had planned to exit, be prepared to adjust your viewpoint. Focus on the terms that are being offered.

Keep Records Current

Your records should be shipshape at all times. A bookkeeper or accountant who cannot seem to keep your records current and accurate is not an asset to your organization and ought to be dealt with accordingly. There are plenty of quality bookkeepers and accounting firms that would appreciate your business. Without current, complete, and accurate records, you will never have a true picture of your company’s profitability, and it will be nearly impossible to obtain a quality business valuation. Many a buyer has terminated negotiations because a value could not be determined or substantiated.

Know What the Company is Worth

Obtain an opinion of value at least annually for the explicit purpose of determining what the business would be worth to a ready, willing, and able purchaser. This will give you a general idea of value. However, you will likely require a valuation prepared by an expert who has a professional designation in business valuations, such as an ASA or ABV if your future buyer is a strategic purchaser. If your business comprises a significant portion of your net worth, you owe it to yourself to know what it is worth at all times.

Keep the Business Plan Current

Have a current well-written strategic business plan, including industry research, robust projections, and an exit strategy. The ultimate goal for most business owners is to maximize personal wealth. However, how you realize that wealth might change as circumstances change. Further, do not confuse exit planning with business continuation planning or estate planning strategies for estate tax reduction purposes.

Know When Succession Planning is Not The Answer

If you have planned to leave your business to the next generation, be aware that other career options and marriage could lead your children in a different direction. Ask yourself these questions: Do they truly have the skills, temperament, and maturity to take over the business? Do they work well together? Do they work well with management? Do they truly wish to own this company or are they just trying to please you? Would they rather have the cash?

Be Aware of Trends

Be aware of any positive or negative impact that a changing economy, public policy, or market trends could have on your industry. The best offer is usually put forth by the most knowledgeable buyer. Therefore, you need to be as aware of the marketplace as your prospective purchaser is. Further, do not assume that your company will continue to cash flow as well in the future should trends change. Be prepared to amend your exit strategy. This could mean being acquired by a strategic buyer that can take your business and your net worth to the next level. A consulting firm that has significant experience in advising businesses about how to maximize value could be an invaluable advisor. Unlike the business owner or a current advisor, such as the CPA, attorney, or financial advisor, an outside consultant has the ability to look at the business from a potential buyer’s and lender’s standpoint.

Keep Your Personal Financial Plan Current

Create a relationship with a credentialed financial advisor. Make certain that your annual plan update includes a realistic value of the business, after tax. With this important data, your financial advisor should be able to advise you on short notice about what portion of your needed income that the after-tax proceeds will provide, if properly invested in a diversified portfolio.

Seek Professional Advice

If a buyer approaches you, seek professional advice immediately before entering into any discussions. Most sellers would be wise to retain a mergers and acquisitions firm to represent them in the negotiations and to attend to all the details. An impartial party: 1) will not have an emotional investment in the business; 2) knows what needs to be done to get the deal to closing; 3) will free up your time to continue to run the business; and 4) usually is well worth their fee.

In Summary…

Be prepared for the unsolicited suitor, treat every offer with respect, and be prepared to recognize a good offer when one presents itself.

 

Joan M. Ridley is president of Business Wealth Solutions, a Dallas-based advisory firm that consults with business owners about how to successfully grow and leave their business. Visit our website at www.bwsllc.net. Call us today at 214.692.9192 for a complimentary meeting to learn how we can help you get where you want to go.

Copyright 2004 Joan M. Ridley