SELLING PRIVATELY HELD BUSINESSES


–SINCE 1982–

Articles & News

Methods Of Accounting: Cash vs. Accrual

By Russ Anderson, SSA, P.C., Certified Public Accountants & Advisors Generally, most small business can elect either the cash or accrual method for income tax reporting purposes. There are exceptions related to size of business, type of entity that might be a partner, and whether inventory is a material factor in producing income. The decision as to which method to use is often based on the timing of when income is received and expenses are paid. Under the cash method, income is recorded on the financial statements when it is actually received and expenses are recorded when paid. The accrual

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Improving the Probability of Selling Your Company

At the end of March, I attended the ACG Capital Growth Conference, which celebrated its 13th year.  The conference enjoyed record attendance of approximately 750 attendees, including many regional attorneys, accountants, and lenders.  The conference was also attended by many Private Equity Groups from around the country.  My takeaways from the conference are, first, that there is a lot of interest in lower middle market companies (defined here as companies with a value between $5 and $50 million) and, second, there is plenty of money for attractive deals. The next question is, “what is an attractive deal?”  Although the majority of business sales

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The Importance of Accurate and Timely Financial Information

If you are thinking of selling your business, I cannot over emphasize the importance of addressing the need for accurate and timely financial information.  Most sellers want to maximize the price that they get for their business and keep the maximum amount of cash received at the closing table. In order to achieve these objectives, one or more lenders are typically involved.  This means that not only will the prospective buyer and its team of accountants be scrutinizing the financial records, but the lender’s analysts will be spreading the numbers.  Usually this financial due diligence will be for a minimum of three

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Term Sheet vs. Letter of Intent vs. Purchase Agreement

I am in the middle of a transaction in which a fairly sophisticated buyer submitted a Term Sheet for a service business having a value of approximately $3 million. During the process of analyzing the offer with my client, the Seller (who is also a fairly sophisticated business man), a number of questions came up regarding the differences between a Term Sheet, a Letter of Intent (“LOI”), and a Purchase Agreement (“PA”). Note: the Purchase Agreement can be either a Stock Purchase Agreement or an Asset Purchase Agreement. Below is a brief discussion of the use and differences of the

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Customer Concentration

Although this year has been the exception, buyer activity typically slows down during the summer, and picks up with intensity after Labor Day, as the vacation season ends and buyers realize that there is still time to complete a transaction before the end of the year. In anticipation of this increased buyer activity, our firm is actively engaged in bringing additional businesses to market. During this process, we find out the good, the bad, and sometimes the ugly about some clients and potential clients. The issue of customer concentration falls within this rating system and is the topic of this

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Tips to Selling a Business to an Employee

This month’s article is written by our Team Member, Scott Densmore, and addresses the tricky issue of a potential sale of a business to one or more employees. Although a sale to an employee could be a viable option, as Scott’s article points out, there are traps for the unwary and an owner should consider doing things by the numbers, and through a third party acting as a buffer to try to maintain the relationship between the owner and the employee(s). In addition to the example that Scott provides at the end of his article, we are currently representing a

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Selling a Business to an Employee

Some of the most frequent questions we receive from sellers relate to employees. One common item we often discuss is a potential sale to an employee. While some transactions like this get completed, there are several issues that should be thoroughly thought through before making the decision to pursue selling to an employee. Confidentiality Owners usually want to keep the sale of the business confidential from competitors, customers, and employees. There are many risks associated with employees finding out about the sale of the business and approaching an employee to consider a purchase could jeopardize the confidentiality, as it is

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The Importance of Confidentiality

Most entrepreneurs considering the sale of their company have a legitimate concern about keeping a potential sale confidential from employees, competitors, and customers until the transition process can be appropriately managed. Owners would not want the employees to be concerned and leave for another job, they wouldn’t want their competitors to use the potential sale as leverage against them in a bidding process, and they don’t want customers to go elsewhere because of a potential change in ownership. In most cases these concerns are well-founded. The process starts with an appropriately drafted Confidentiality Agreement (“CA”). This is also an area

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The Importance of Confidentiality

Most entrepreneurs considering the sale of their company have a legitimate concern about keeping a potential sale confidential from employees, competitors, and customers, until the transition process can be appropriately managed. Owners would not want the employees to be concerned and leave for another job, they wouldn’t want their competitors to use the potential sale as leverage against them in a bidding process, and they don’t want customers to go elsewhere because of a potential change in ownership. In most cases these concerns are well founded. The process starts with an appropriately drafted Confidentiality Agreement (“CA”). This is also an

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What to do if You Receive an Unsolicited Offer for Your Business

Over the years, we have be contacted by numerous business owners that are in a panic because they have been contacted “out of the blue” by a potential buyer for their business and don’t know what to do. Usually the potential buyer is a competitor, or if the business is large enough, it might be a Private Equity Group (“PEG”). Additionally, it might be a solicitation by an intermediary firm indicating that they have a buyer that is interested in acquiring the business. In today’s world there are business lists available and it is fairly easy for buyers to buy

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