BUSINESS
O
ften, small business owners such as those run by irrigation contractors get to the end of their run with the industry and think they have a big book of business to sell. It turns out all they really have
to offer is a customer list as opposed to a company. Many factors come into play when selling a business, notes Andrew Yeghnazar, managing partner, Orbis Man- agement, Pasadena, California. “You and I can do everything right, yet situations and
circumstances outside your control can end up having a significant impact on the final transaction,” he says. “Tese can be both negative and positive.” Industry experts say factors currently influencing the mergers and acquisitions landscape include higher interest rates, inflation and supply chain challenges.
CHECK YOUR ASSETS
As a starting point for developing a plan for acquisition, understandable “normalized” financial data is required, such as a balance sheet and an income statement at a min- imum as well as a chart showing the business’s seasonality, says Garry Bartecki, managing member of GB Financial Services, Plano, Texas. “Normalized data is adjusted for amounts the current owner takes out in salary and benefits over and above an amount that is normal for the industry,” Bartecki says, add- ing that covers elements such as vehicles, vacations and benefit programs. It could also include one-time events that are not nor- mal and impact profit either positively or negatively, such as a location move to open a new branch. “Financial data should express an estimate of the cash flow the buyer can make going into the deal,” Bartecki says. “Fixed costs should be scheduled — like leases, rent and note payments.”
Before releasing any revenue data, ensure the person
presenting themselves as a buyer is able to do the deal and is not merely looking around to see what others are doing, he adds. Te trick is to provide financial data without dis- closing your customer list, employee list and other data so that someone looking to buy isn’t able to get meaningful data to solicit customers and employees. Sincere buyers have a bank and attorney ready to pre-
pare and review paperwork and provide funding, Bartecki says. “You have to be careful with buyers in your area of busi-
ness,” he adds. “Out of town buyers will normally be ready to do something. Have an accountant prepare your finan- cial data because they know what numbers they want to see without disclosing details. Tey will also want to see tax re- turns, but this is after you have something going with them. Make sure you are current regarding state and local taxes.” Use a set of industry metrics as a template to prepare statements to which industry results can be compared, Bar- tecki says.
In assessing sale viability, a business owner or president should determine whether they want to stay on, says Joe Higgins, a Harvard Business School executive in residence. “How critical are they to maintaining current and win-
ning new business? Is there a successor in the wings?” he adds.
In terms of what business owners need to do with their
team, Higgins points out “a sale process can be very disrup- tive to daily business. Tere is a time and place to inform only certain senior members of the team, whom a buyer will probably want to meet as part of their diligence. “If a sale is imminent with a scheduled close date and depending on the owner or president’s plans, that is the time to announce more broadly across the company.”
Use a set of industry metrics as a template to prepare statements to which industry results can be compared.
irrigationandlighting.org
November 2023 Irrigation & Lighting 29
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