Harvesting and Exiting the Venture Sell the Business Chapter 14

Presentation Outline Personal Reasons for Selling Business Reasons for Selling Determine the Company’s Valuation Determine Best Candidates Tax Considerations: What Method is Best for the Seller

Personal Reasons for Selling Investors Are Forcing You to Become Liquid Cash-in from Entrepreneur Disagreements Acceptable Unsolicited Offer Business - Burn Out Personal Event Poor Health

Business Reasons for Selling Requires Significant Capital for Growth New Competition Limited Opportunity Close to Closing Market Condition Forecasts

Determine the Company’s Valuation Valuation Based on Financial Evaluation Strategic Marketing Value

Determine Best Candidates Strategic Buyers Competitors Related Businesses Manufacturers of Related Products Companies with Announced Acquisition Plans Financial Buyers Management - ESOP High Net Worth Individuals

Tax Considerations: What Method is Best for the Seller Stock for Stock Cash for Stock Installment Transaction

Double Taxation Asset Sales - Corp. Tax + Stockholder Tax

Financial Up-to-Date Maintain the Finances on a Consistent Monthly P & L and Cash Flow Basis

Prepare 3-Year Projections by Month Actual Account Plus Future Accounts by Actual Product Plus New Products by Region and/or by Store

Know Why You Are Selling the Company Strategic Reasons Growth Exceeded Management Capabilities Diversify Net Worth Other Interests Getting Older - Illness - Divorce Owner Disagreements Investors Desire to Liquidate

Things to Do While Running the Business Keep Term Liability Agreements Short Leases - 2 to 3 Years with Options to Renew Distributor Agreements - Short Term Cancellation Supplier Agreements - Cancel at Your Option or in 30 - 60 Days Keep Term Asset Type Agreements Longer Employee Non-Compete Agreements License and Royalty Agreements Sales Agreements with Price Escalation All Agreements Must Be Assignable

A Model for Running the Business Develop a Prestigious Customer List Keep a Well-Maintained Facility Show a Continuous Growth in Sales and Profits Develop Propriety Assets Patents, Copyrights, Trademarks Process Know How: Formulations and Documentation Develop a Well-Respected Sales Distribution Channel In General, Do Things That Others Will Value Much Higher Than Your Cost to Create Them

The Actual Process of Selling (Average Time from Beginning to Closing is Up to One Year) Develop a List of Candidates Choose a group of strategic buyers Try to Play the Role of a “Reluctant Suitor” Have Others Make Initial Contacts Investment Bankers - Consultants - Brokers, etc. Get More Than One Serious Candidate Use Competitive Negotiation Strategies Let All Candidates Know Others Are Interested Negotiate An Equitable Sales Price And Related Issues

The Actual Process of Selling (Average Time from Beginning to Closing is Up to One Year) Select One Candidate Develop A Letter of Intent A) All Equity Issues Described “How Much” B) A Period of Due Diligence - 15 to 60 Days Negotiate a Definitive Agreement of Sale Closing