Success in transitioning your business is a function of careful preparation. Allan Siposs is head of FMV Capital Markets, the investment banking arm of valuation and financial advisory services firm FMV Opinions, Inc.

In this interview, presented for its value to independent wealth managers as business owners in their own right and as advisors to entrepreneurial clients, Allan responds to some typical questions from business owners on the topic of business transition.

How do I get the most money when I sell my company?

The key to that is preparation. A carefully considered, well structured strategy will ensure that all the elements are in place for maximizing the proceeds from a sale or any other transition. Among other important elements of transition planning is clearly defining your personal, business and financial objectives, knowing the value of your business and developing an awareness of "cycles of opportunity" in the M&A marketplace.

When I decide to sell my company, should I do it on my own?

Some owners are able to do it on their own but most aren't. And most that do it without help leave money on the table. Sometimes I get called in after the transaction is in progress because the seller gets overwhelmed and realizes that he or she is at a disadvantage.

For example, sellers tend to focus on a given price. In fact though, negotiation and creative deal structuring are crucial to achieving optimal value. For most entrepreneurs, the transition of their company will represent the largest single financial event of their life and, therefore, a one-time shot at substantial financial gain. Given these high stakes, my advice is to consider whether you have what it takes in knowledge and skill to navigate the process successfully. Do your homework, know what you don't know -- and be honest with yourself about that. If you decide to get help, make sure you approach appropriate professionals early in the process.

How will I know when the timing is right for a successful sale or transition?

When asked how he made so much money, financier Bernard Baruch answered, "By selling too soon." Relative to business transition this means the seller should be willing to seize opportunities presented by the M&A marketplace. The entrepreneurs who walk away with the best deals use timing to their advantage. However, in order to do this, the business needs to be ready -- and, more important, the business owner must be emotionally prepared to let go. Here again, it's beneficial to have a transition plan already in place so that you can quickly evaluate your options and make appropriate decisions.

I know my business and I believe I know its value. Why do I need a valuation?

If you believe you know the value of your business, chances are you're wrong -- and quite possibly off by millions of dollars. This is one of the most common mistakes made by those who are exploring or getting into the M&A process. If you're serious about ultimately maximizing proceeds of your transition, forget about relying on estimates or value derived from formulas.

Instead, focus on a value determination that takes into consideration the many diverse or unique elements of your business and its industry, external conditions, the impact of predictable and unpredictable changes, and the future potential of the business -- all viewed from the perspective of a buyer or investor. Knowing the value of your company and understanding the factors that may increase or diminish its value, will help you operate your business with an emphasis on its profitability while, at the same time, focusing on maintaining or increasing its value.

The marketplace is favorable right now but I'm not ready for a transition. Can you predict how long this trend is likely to continue?

I'm involved with some great transactions being done in this market environment, so I can tell you that those who either aren't ready or prefer to be on the sidelines right now are missing opportunities. This is a favorable market. My advice to anyone thinking about a transition is to get serious and begin the process -- or at least start exploring their options. Let's face it, the remarkable conditions that we're seeing these days add up to a kind of perfect storm. But, like all previous cycles of the M&A market and of the broad economy, this favorable phase won't last forever.

Do I have time to get ready and not miss an opportunity for a lucrative transition?

To answer that, we have to step back a bit. The aftershock of 9/11 made us realize how quickly and dramatically the economy and everything that it touches can feel the impact of unexpected events. We can see from the stock market that we remain vulnerable to issues that are beyond our control. On the other hand, the timing and reasons for changes in the M&A marketplace can be anticipated, analyzed, and acted upon. If, for example, the political power recently gained by the Democrats is sustained and the party captures the White House in 2008, one thing that is almost certain to occur is an increase in the capital gains tax and, very possibly, other legislative changes that could have a negative impact on businesses and, by extension, on the M&A marketplace. You can bet that the private-equity funds are aware of this and considering their strategy in terms of timing. My prediction is that they will feel an acute sense of urgency to quickly "use or lose" their hoards of cash, and this will result in an unprecedented sellers' market over the next eighteen months or so. The "buzz" about uncertainly after this period has already started.

How can I determine my transition options and decide which one would be the most appropriate for me?

Before we get into a discussion about potential transition options, you need to have clearly defined business, personal and financial objectives. Then, you need to know the value of your business and determine whether that value will offer desirable options that are aligned with your goals. Also relevant could be issues involving tax planning, estate planning, family succession, partnership issues, and market conditions for companies in your industry. An evaluation of all these factors should surface all your viable options. Equally important, it should point to strategies to prepare for a later transition, if current indications aren't ideal. This is one area where I would specifically recommend you talk with an M&A professional.

A competitor is interested in acquiring my business. It seems logical to me that he would be willing to pay a premium for my business. Will he?

Don't assume that a competitor will pay a premium for your business. Unless the transaction is carefully managed, a competitor can be one of the least desirable potential buyers. If the transaction falls through, as many do, proprietary aspects of your business will have been exposed. Often, competitors don't pay the best prices because their offers are frequently based on price-to-earnings multiples within the industry, and this is an assumption that can, in some cases, erode the value of a successful company.

On the other hand, a strategic buyer who might be seeking a geographic presence, product line extensions, new markets, customer accounts, unique products and services, distribution channels, or manufacturing capabilities, is much more likely to pay a premium for the perceived value of your business. Similarly, private equity funds will pay premiums for profitable or growing companies where the potential future value and return on investment is demonstrable. For such buyers, it's simply more time efficient and cost effective to acquire rather than build -- and if this is properly demonstrated and positioned in the structure of the deal, it will add value to the transaction.

Another thought: If you're only dealing with a one buyer, how can you sleep at night knowing that you may have left money on the table?

Is an employee stock ownership plan something I should consider?

An ESOP is a liquidity option that offers several benefits to the business owner. ESOPs can be an efficient mechanism for an owner to sell a minority interest at full market value, but maintain control of his or her company, it can function as an employee retention or succession planning tool and, most important, it can confer personal and corporate tax benefits. Additionally, an ESOP allows the business owner to maintain confidentiality with regard to most business and financial matters. Though an ESOP makes sense for some, it should be very carefully considered and implemented by the right professionals.

I'm not ready to sell my company, what other options do I have?

It depends on the condition of your business, the value of your business, the degree to which you want to remain involved in the business, whether you have the right management team in place, your long-term transition plans, and a variety of personal, financial and business objectives. An analysis of these issues will identify those options that will work best in your particular situation -- an ESOP, a management buyout, a partial sale, a recapitalization, a transaction which allows you to be an absentee owner, or other liquidity event structured to meet your current and future objectives. Under the right circumstances, a recapitalization can offer one of the best "liquidity with control" options. If properly structured and with the right investor, it can offer a significant initial cash payment, ownership retention, operating control, an infusion of new capital, management participation as an incentive for senior management and an opportunity to get paid again when the business has achieved a desired level of growth and value. This "second bite of the apple" can exceed the initial payment.

How do I find a buyer for my business?

First, don't focus on finding just one acquirer. Instead, work to identify as many potential buyers as possible. Select those that appear to be serious and that qualify to complete the transaction. Negotiating within a pool of multiple buyers and investors, each with unique motives for acquiring your business, creates a competitive environment that tends to increase the ultimate value of the transaction. As the old adage among M&A professionals has it, "one buyer is no buyer."

Second, broaden your search, both geographically and in terms of the types of buyers or investors who are likely to have an interest in your business. More often than not, I find that the buyer that initially appears to be the best one isn't the one that offers the best terms or comes through in the end. So you need to identify the right buyers and those that urgently want to complete the transaction. Failing to do this will waste a great deal of your time.

What is your best advice for dealing with buyers?

Accept that the playing field isn't level and keep reminding yourself that the stakes are high. Most preferred buyers complete numerous transactions each year and they are clear as to what they want or expect. They go into a transaction with a great deal of experience in negotiating both price and terms that are in their favor. Keep in mind that buyers or investors shop around and simultaneously explore several acquisitions -- meaning you're in a competitive environment. Make sure that your company is presented to attract the attention of serious buyers, your documentation is thorough and understandable to buyers, and that the future potential of the company is clearly demonstrated.

Remember too: he who mentions the price first loses. So focus on building the value of your business from the perspective of a buyer or investor so that price and terms are optimized.

What exactly is the role of an M&A intermediary? Why should I not use my attorney or accountant for the purpose of selling my company?

Each is a specialist in a specific field and, while business owners very easily seek counsel from an attorney on legal matters, or rely on their accountant or financial advisor for advice on tax or money issues, they are reluctant to speak with an M&A professional about the transition of their companies. I know how complicated the process gets so this reluctance never ceases to amaze me, especially given the importance of the event to every entrepreneur. The M&A intermediary is an advocate for the business owner -- from well prior to the transition right up to its close. As a dedicated advocate, an M&A intermediary will work to ensure that the entire process is managed to maximize business value and achieve ownership's objectives.

What is the best way to become informed on the M&A process as it relates to my business and my specific situation?

You would be well advised to explore the transition process one-on-one with an M&A intermediary of your choice -- that's whether you're in the initial planning stage or haven't even begun.

In the 70s, 80s and 90s, the trend among many intermediary firms was to offer seminar presentations to business owners. While these presentations informed audiences to a degree, the primary purpose was to source clients, convince them to buy a pricey valuation and then motivate them to sell immediately, with little or no effort to uncover or present alternative options.

As you'll appreciate, this approach yielded few transactions and, I would venture to say, some unhappy clients. Recently, and perhaps as a result, business owners have become more savvy and the M&A industry, especially the mid-market segment, has also changed. The trend now -- especially among boutique firms -- is a much more personalized and customized approach to the transition process.

I believe I'm ready to sell and I think the business is ready but, after all the years I have invested in my business, I am having a hard time with the thought of leaving it. How can I prepare myself emotionally?

An owner's inability to "let go" emotionally is definitely an issue that can, and often does, negatively impact the transition process. Buyers sense when an owner isn't completely committed and, not wanting to waste their time, quickly lose interest. The perfect transition -- one that puts you in the best position to maximize proceeds and feel emotionally satisfied -- has three elements: having a transition plan, staying on top of the transition process and having a blueprint for the next chapter of your life.

In other words, you have to put as much effort into planning for your life after the transition as you do in planning for the transition itself. In fact, it has to be an integral part of your formal transition strategy. If you find it impossible to separate yourself emotionally from your business but would like at least some of the benefits of a transition, my advice would be that you consider a transition alternative that provides liquidity as well as continued involvement in the business. I have seen many cases where this worked because it lets the owner "ease out" emotionally while exploring options for the next chapter of his or her life.

I have no intention of selling my company. Why should I plan for an event that is not even on my radar?

The transition of a business, like death and taxes, is inevitable. As the saying goes, every entrepreneur leaves the business eventually -- vertically or horizontally. Why would a business owner who skillfully operates a company not be proactive with regard to this important issue? Let's face it, life does throw curveballs. I have seen too many situations where unexpected events -- sudden death, a major illness, partnership or family issues, external factors -- found a business owner unprepared and suddenly under extreme pressure. I have also seen situations where those who have walked away with the most cash were the ones who planned ahead and were able to meet the challenges of unexpected events head on.

Entrepreneurs, by nature, like to be in control. Make sure that you know why you want to sell or otherwise transition your company, determine when you want to that to happen and, most important, how the process will be executed. Invest time and effort in a transition planning process, and run your business as if you will be selling it tomorrow. Then, watch the market and constantly evaluate your options. And, when the time is right, be prepared to act. -FWR

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