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It is that time again for many printing companies to begin planning for the new year, and consider issues ranging from hiring new employees to purchasing new equipment. The most complex issue for ownership is whether it is time to sell the business as a whole or in parts.
Many owners may consider selling off unprofitable business lines or equipment, while others may take a more radical approach and sell the entire business or all of its assets. Issues that owners face when selling part or all of their business include, among other things, key employees, equipment, internal controls/financials, franchise issues, the use of a business broker, purchase price and terms, and maintaining the business during the sale process.
Key Employees
Every firm has key employees. These people may be family members or long-term associates in sales, operations, or finance, who are essential to running the business.
Before beginning the sale process of any business, an owner should decide if he or she will bring key employees into his or her confidence, and make them part of the sale process.
Sometimes ownership has no choice, if, for example, the person is the CEO or CFO. Many prospective purchasers will want to speak with these people about critical aspects of the business before any purchase.
Further, prospective purchasers may be concerned with other employees, such as large producing salespeople. They will want these salespeople to be under contract so that they will not leave upon the sale. The owner may have to oblige and extend or renew contracts.
This attention, however, may also begin to worry the key employees. Owners may be able to ensure the key employee's cooperation during the sale, and continued loyalty if they make certain provisions for them in a subsequent sale.
For example, providing continued employment for key employees in an enhanced position or as a consultant may offer comfort. Some may be given bonuses for their assistance in the process.
The most interesting aspect in the sales process may occur when a key employee—once made aware of the intent to sell—considers purchasing the business. This development is usually one of the most challenging for an owner, because he or she may feel a sense of loyalty to the employee while they may not have the financial ability to pay the asking price. Thus, deciding who to include in the sales process and how the person is compensated is a critical component of any sale.
Equipment Sales
Generally, every sale involves the transfer of some equipment. Many printing businesses may decide to sell presses. What is sold as part of the transaction is irrelevant, but the owner must ensure that the business owns the equipment, or that it may transfer it to a prospective purchaser without penalty.
If the purchase of some equipment was financed, the owner may need approval from the seller or third-party financier, who may have taken a security interest in the property before any transfer. Similarly, if the equipment was leased, the owner may need the leaseholder to approve any transfer.
Internal Controls and Financials
Prospective purchasers will usually require an owner to disclose certain internal control and financial information. In small printing firms, no one expects the intricate internal controls or financial statements large public corporations possess. However, they will expect to see documentation that will provide a reasonable picture of the business' performance.
Audited financial statements are not a requirement, but accurate and current information will probably be a condition of the pre-sale review process. Accordingly, if a printing business plans to sell, the ownership should ensure that its operational and financial house is in order.
When providing this data to a prospective purchaser, the ownership should insist on a confidentiality agreement. Essentially, no important business information, including, among other things, customer and financial information, should be provided to a prospective purchaser unless they agree to keep such information secret. If they are unwilling to agree to this, find another buyer.
Franchising Issues
Some businesses operate as a franchisee for a business or product line. When selling, owners must, initially, ensure the business is in compliance with the franchise agreement. Any breach of that agreement may place the franchise in jeopardy. Additionally, many franchise agreements will require the approval of the franchisor before the sale. Essentially, the franchisor may control the strings of, and require approval of, as well as assurances from, any purchaser.
Using a Broker
A business broker is a professional who represents a seller and provides certain services, including acting as a finder of prospective purchasers.
A printing business owner should exercise caution when retaining these services, and only engage them after interviewing several brokers and becoming comfortable with the specific sales plan as outlined by these brokers. Further, any agreement should be in writing, and should detail the duties and compensation of the broker.
Sales Price and Timing
Common business sense dictates that an owner selling his or her business will want to maximize the sales price. The real challenge, however, is in determining the maximum value. Many factors contribute to deciding this. Ultimately, it may not be the offer with the largest dollars attached to it.
Initially, some owners may feel they are the best judge as to the value of their business; however, this truly is a short-sighted approach. In fact, owners may want to consider retaining experts to determine the value of the business. These experts will provide a more realistic and less emotional approach to the question.
A critical component of any sale is the terms and timing of the transaction. When a lawyer speaks of the terms of the sale, he or she is describing those elements that are essential to the sale.
For example, the sale price is essential to any transaction, but ensuring the retention of key employees or the payment terms of the sale price may be more critical than the actual dollar amount paid.
Similarly, the timing of a sale is important to certain owners. Some parties may believe the transaction should be placed on the fast track, while others may consider a wait-and-see approach more suitable. In fact, some sellers may be willing to take less money if the buyer is willing to make the purchase sooner rather than later.
These terms may be critical in assessing or deciding on a final bid for the entire business or line, and, as such, may have an effect on the ultimate purchase price agreed to by the owner.
During the Sales Process
Although it is suggested that the owner keep the negotiations as confidential as possible, news of a potential sale has a tendency to spread fast. Such news dissemination is especially problematic if a business is being sold because it is not profitable or losing money. As a result, quick decisions must be made so as not to have a mass exodus of experienced and reliable employees.
When appropriate, owners should disclose accurate information to their employees to maintain goodwill. However, the owner has every right to inform his or her employees that he or she cannot disclose any information. As you can imagine, these decisions and the subsequent disclosure should be made in conjunction with legal counsel.
Business as Usual
The owner should continue to operate the business as profitably as possible. No owner wants an unhappy prospective purchaser who may decline to purchase the business when he or she discovers the current ownership has made some last-minute unpalatable change.
Although this may be season of good tidings and joy, business owners contemplating the sale of their shops may find the season to be one of worries and questions for all involved in the sale.
Ernest E. Badway is a partner with the New York and Newark, N.J., law firm of Saiber Schlesinger Satz & Goldstein LLC, practicing business law where he advises and counsels printing clients on corporate, business, litigation, employment, and many other matters. Contact him at eeb@saiber.com, (212) 461-232, or (973) 622-3333.
author: By Ernest Badway