by Rock LaManna, owner, LaManna Alliance
For most people, a comfortable retirement is the goal, and for business owners, this includes either passing their legacy on to family or selling. No matter what, everyone must exit sooner or later. How successful that transition is depends entirely on the path chosen.
When selling a business, it’s important to keep in mind that when things feel too good to be true, they usually are. This was the case for Brad Van Leeuwen, former owner of Trade Print Finishing, a trade finisher offering foil stamping, UV coating and other finishing services.
Van Leeuwen opted to oversee the sale of his business himself rather than consulting an outside party to assist in going over all the details of the fine print. As a result, he experienced several headaches that could have been avoided.
Seller beware
Everyone is familiar with the phrase “buyer beware.” However, throughout the selling process, business owners should keep in mind the phrase Caveat Venditor – seller beware. This is especially true for situations like the one in which Van Leeuwen found himself.
Van Leeuwen didn’t make any one major blunder. It was more like death by a thousand paper cuts. All that stemmed from playing a game in which the rules are not all that apparent to a rookie – especially one going it alone.
The alternative to going it alone is to work with companies that act as merger and acquisition (M&A) intermediaries. Partnering with an outside source just makes good business sense, as there are simply too many rules to this game and too many entities out there looking to take advantage of uninformed sellers.
The selling of a business can be broken down into three important components: presale, due diligence and post-sale. Let’s take a look at how Van Leeuwen approached each step and where he could have benefitted from some outside help.
Presale: surprising revelations
In the process of selling his business, Van Leeuwen’s first move was a good one. He opted for an independent valuation, so he could understand just what his company was worth.
However, when the valuation was completed, it yielded the first surprise. Van Leeuwen always assumed that the sale of his business would be based primarily on the value of his assets. The valuation revealed that the true worth was based on the businessÂ’ profitability, not its big iron.
With this new perspective, Van Leeuwen began to see what offers could be garnered. This was the presale period, which can generally take two to three years to complete. During this time, many aspects of the sale need to be considered. This is where a third-party expert can truly make a difference, as there are many vital items that can be overlooked.
During the presale process, the following are very important areas of which to be aware:
Taxation issues
Sellers should consult with their finance and accounting team to determine how the sale of the business will affect their taxes. A myriad of potential landmines can occur if the deal isnÂ’t structured correctly.
Real estate
A common mistake for business owners is failing to account for the property as part of the transaction. If the seller owns the property the business is built upon, aim for a deal where the seller can walk away without any leasing requirements. There should be as few obligations or ties to the new owners as possible.
Growing sales
Don’t underestimate the need for growing sales. It’s far too easy to get caught up in the details of the transaction – especially if trying to orchestrate it without help – and take eyes off the bottom line. The business must continue to grow, all the way through the closing. If it’s declining, that gives the seller leverage to renegotiate the purchase price.
With the help of an M&A intermediary, sellers can be assured they are protecting themselves and their businesses as they move through the selling process.
Due diligence: the smooth operator
By his own admission, Van Leeuwen felt the due diligence process was very smooth. It’s no surprise as the buyer controlled the timeline and the process. Sellers can, and should, expect some bumps in the road during the due diligence process.
Having an attorney experienced in M&A to review a Letter of Intent (LOI) from prospective buyers can go a long way toward ensuring that all parties benefit – not just the buyer or seller.
But, don’t stop there. Sellers should work with an M&A intermediary and an attorney to perform due diligence on the buyer. This includes a review of their financials (as much as they will share), their management team and, most importantly, the company culture.
Sellers want this to work as much as the buyer, and it’s up to the seller to determine a culture that will mesh with that of the current business.
Post-sale details
The post-sale is all about transition. During the due diligence, a transition team should have been established both for the business and for the buyer. Now that the deal is done, it’s up to these two teams to initiate the transition process.
A lot of details will take place during this period, so it’s essential that both parties communicate and be as transparent as possible with the company as a whole. The primary focus here should be on ensuring the cultures mesh.
If due diligence has been done correctly and the business is paired with the right buyer, the big picture details will be handled. Now it’s time to co-exist and move on. Communication, teamwork and working together for bigger and better things can make this happen.
Lessons learned
As stated previously, everyone is going to exit their business at some point. It’s up to the individual to determine which path is the best. While the issues Van Leeuwen experienced can make the transition more difficult, that shouldn’t discourage those looking to sell.
In fairness, Van Leeuwen picked the right time to exit from a business. There was nothing wrong with his big picture – he just had some issues with the execution. That might have been avoided if he would have worked with a professional team through the sale. The right representation can protect everyone’s interest while ensuring a smoother transition and better outcome for all.
The LaManna Alliance provides print industries advisory and business broker services for printing and print-related businesses. For more information, visit www.rocklamanna.com.
