Plan for the long haul when selling your business

Planning to sell your business? Better plan for the long haul. The three years it took Robert Boncosky to sell his Lake in the Hills trucking company, Boncosky Services, Inc., is pretty typical.

"It's a very long process," Boncosky says. "You have to do it properly."

Because most entrepreneurs manage for today rather than a someday-in-the-future sale, the first step often is to "create a very clear plan to build value and make the company salable," says Richard Jackim. "The owner's goals and objectives must align, and everyone must have a very clear understanding of the value of the company -- and what the value drivers will be" for a buyer.

Jackim is president of The Christman Group, a Palatine investment banker.

Tax returns can be the first hurdle for smaller companies, those with annual sales under $5 million.

"Small businesses are valued on a history of their earnings," explains Peter Nilsen, principal of Middle Market Resources, LLC, St. Charles. "But the majority operate to minimize taxes, not maximize earnings."

There's nothing wrong with minimizing taxes, except, Nilsen says, "For a buyer to get funding, lenders need to see dollars being generated on the tax form. They want two to three years of earnings documentation."

Excessive owner compensation might be a factor. So might environmental issues. Receivables may need to be written off, management strengthened.

Nilsen sees two other factors that could chill the sale of any business, including middle market and larger. As Baby Boomers begin to retire and sell their businesses, "The number of businesses on the market will double over the next five years," he says, "but there will be a much smaller number of younger people" to buy. Tighter credit, Nilsen says, will compound the problem.

Boncosky's sales journey began in 1998. The sale, to Enterprise Transportation, closed in 2001 and included a six-year consulting stint for Boncosky that was extended to eight and employment contracts for two sons in the business.

"There was no gun to my head. The company was very profitable," Boncosky says. "But I had lost the burn in my gut. I was at the stage where it would take $10 million in capital for us to grow, and I didn't want to grow."

After getting a sell vote from his sons, including one not in the business, Boncosky turned to The Christman Group. "I couldn't run my company and sell it at the same time," he says. "I needed a third party."

Where might you turn? Your accountant should be able to refer you to a business broker, investment banker or attorney experienced in arranging sales. Ask your attorney -- most don't have transaction experience -- for similar referrals. Talk to Jackim or Nilsen.

You probably should get your financial planner and estate attorney involved, too. If yours is a family business with siblings and multi-generations, the family business centers at Loyola and UIC might be helpful.

© 2008, 121 Marketing Resources Inc.