Preparing Your Staffing Firm for Sale
Bob Cohen & Sam Sacco
How can you prepare your company to avoid the possibility of a fire sale? Timing is essential. Consider both the external economy and your firm’s internal conditions when you are deciding whether to sell.
A soft economy may have an adverse effect on your valuation. Many prospective sellers have called us in the past few months saying they’d like to sell their business “but I understand that now may not be the best time to do it.” It could be that it’s the best time regarding the growth stage their company is in, but it may not be best in regards to the state of the economy. However, not all the news is doom and gloom; there are still some realistic buyers in the market.
Ensure that your financials are clean and clear and easy for potential buyers to read.
Smaller firms (under $10 million) typically have compiled statements, unless their banks demand more. Ideally, these statements would include audited or reviewed financial statements such as income statements, a balance sheet, statement of cash flow, cash flow forecasts and pro forma income statements, supported by adequate notes to the financial statements.
Clean up your Balance Sheet; resolve outstanding litigation when possible. Make sure you are in good standing with your workers comp, unemployment insurance and in your State/Province of business. Keep current with your payroll taxes and reports.
Analyze the tax consequences of the sale. In a C corporation, if the owner sells the assets, money earned by the company is taxed twice: when it is earned and when it goes out to the shareholders. If an owner sells the stock of a C corporation, the money bypasses the company and goes directly to the owner; therefore, he/she only pay taxes once. In an S corporation, an LLC or an LLP, the owner can sell assets without the concern of double taxation.
Choose the correct method of valuing the business; if unsure consult an experienced staffing industry M&A advisor.
If your lease is up for renewal, make sure the new agreement is transferable in the event of the sale of your business. More than one deal has fallen through simply because a buyer could not secure satisfactory leasing arrangements from a landlord when the business was to change hands.
Limit your attorney’s participation to the legal aspects of the sale. The attorney’s job is to protect you legally, not run the deal. Attorneys are often more familiar with win/lose transactions than dealing with a prospective partner; some can set the wrong tone for negotiations.
Strong, healthy companies will always be in high demand. If there is room for improvement in your firm, now is the time to make changes to preserve your future. Increase your margins, broaden your client base, and examine all operating costs.
Keep up with trade industry journals that report on sale transactions. Make a note of these buyers, who they are, where they are and what they do. Many of these buyers are private firms and could be a good acquirer for your firm. Check out their web site, monitor how their other acquisitions are proceeding and then determine if they could be a candidate for you when you are ready to sell.
Most businesses today are sold with an earn-out; there are very few, if any deals with all cash at closing especially in this challenging economic environment. Important considerations for the seller are your risk tolerance and how long you are prepared to stay with the buyer after the sale. The buyer will be concerned about whether this is a tuck-in or a new location for them as well as how much they think they will need to invest to get the returns they desire.
It is always better to start this work before you need to. It is time and effort well invested. It could prove invaluable.
For more information contact:
Sam Sacco at 910-509-0691.He can also be reached at firstname.lastname@example.org. Sam and Bob have successfully completed over 120 staffing industry transactions. Visit their website for more articles and information at www.racohenconsulting.com