Landscape Management, October 2013

42 BUSINESS PLANNER 2014 intermediary has too many restrictions placed on marketing the business or doesnt have the right connections or resources to market the business effectively Market conditions are negative The market is cyclical There are times when few transactions take place because credit markets tighten When interest rates are higher the available financing usually decreases because lenders require a certain level of debt service coverage LOWERING THE BUYERS PERCEPTION OF RISK The first three reasons a business may not sell are primarily because of the perceived riskiness of the transaction to a potential buyer A few strategies are available to address the risk to a buyer The best thing to do if possible is to address the reasons for the perception of risk by steps such as Build the recurring revenue components of the business or create new ones This is somewhat counterintuitive but one way to do it is make an acquisition or two Develop the management team and make the business less dependent on the owner Diversify the customer base Unfortunately those ideas take time If you dont have the time to make significant changes in the business alternatives are Make a portion of the purchase price an earn out payable only if the business achieves a certain level of performance after a deal is done These are tricky The objective is to decrease the buyers perception of risk while not significantly increasing the sellers risk of going unpaid Provide some of the financing for the transaction in the form of a seller note This too is tricky because a seller note will be subordinate to the traditional financing a buyer obtains and may have limited payments for two to three years However lenders often prefer 20 percent in seller financing Fortunately sellers who are willing to take a seller note will on average realize a significantly higher price for their businesses than those who are unwilling to take seller paper Focus on buyers who will have a lower perception of risk such as key employees or perhaps competitors PRICING AND MARKETING To stimulate buyer interest its a sound idea to have a discussion with a mergerand acquisition adviser about an asking price that will be attractive to potential P Î È Run È K buyers without leaving money on the table In some cases an earnout or similar provision can help bridge a valuation perception gap One factor that diminishes the likelihood of receiving an offer is a limited marketing plan thats the result of concerns about confidentiality Many owners are concerned their business may implode if employees or customers find out its for sale Thus they limit the advertising or types of contacts their intermediary can make to avoid the risk of inadvertent disclosure However theres a direct relationship between the number of potential buyers who know about an opportunity and the likelihood of receiving an acceptable offer Its often wise to have as broad a marketing program as possible Negative market conditions are one thing you cant control The best advice is to prepare ahead of time and be ready to sell when market conditions are right not knowing exactly when that may be Your only other realistic alternatives are to delay your transaction until market conditions improve or use transaction terms seller financing earn outs and asking price to make a proposed transaction attractive even with negative market conditions BEING OBJECTIVE Examine your business as a buyer would and address the things that would make your business unattractive to you if you were considering purchasing it Being objective is difficult when its your business so consider asking trusted advisers to do the same thing and be straightforward with you about what they think The best alternative is to avoid this situation altogether by developing an exit plan An effective exit plan should assess the value and marketability of your business and include action steps to improve them throughout your planning timeline A primary goal of your exit plan should be to enable you to sell your business on your terms and timetable LM Edmonds is principal of The Principium Group a Green Industry merger and acquisition firm Reach him at redmonds@ principiumgroup com continued from page 40 LANDSCAPEMANAGEMENT NET OCTOBER 2013 Planning pointer The first three reasons a business may not sell are primarily because of the perceived riskiness of the transaction to a potential buyer The best thing to do if possible is to address the reasons for the perception of risk BUYERS TEND TO FAVOR BUSINESSES WITH A SIGNIFICANT STREAM OF RECURRING REVENUE SUCH AS LANDSCAPE MAINTENANCE OR LAWN CARE