EP 37: Frequently Asked Questions Edition: April 17, 2020

Ed Mysogland  0:01  
Please welcome please welcome welcome. This is another episode of the defenders of business value podcast podcast where we talk about what makes a business valuable learn the tips and tactics to increase your company's value that only veteran dealmakers know. And now, here's your host, Ed, miso clamp. Welcome to frequently asked question Friday, I'm your host at my sick land, I help business owners make sense of the value in their company so that one day they can sell it when they want, how they want and to whom they want. Each week, I answer three questions about business value, or selling companies that come in from the website or social media. This is a little bit shorter of an episode, but hopefully, it will be helpful in your journey to making a saleable company. Alright, so let's get to it. Okay, the first question, how is a buyer going to take over a relationship with the customer that are the customers that I have developed over the years? Alright, so the first thing is that, you know, chances are that you've gotten a lot of business as well as employee relationship that you've developed, I mean, that you just can't be in business for probably as long as you have, without developing those relationships. But, as we've talked about, in the guests that I've had on the podcast, I mean, it creates a little bit of a challenge to transfer those relationships to a buyer. And that's what the buyer, ultimately is doing is trying to mitigate those risks. So, like I said, there's a risk associated with it, and when, and you should anticipate that the buyer is going to want to figure out ways to offset any perceived risk. So there's a couple areas that you probably want to examine. If you have contracts with your customers, you probably need to first identify assignability. Now, most customers, you know, aren't going to blindly just assign a contract over to someone that they've never met. So the transition between seller to buyer becomes more instrumental. So the second thing you need to keep in mind is that evaluate the relationship, you know that there? Is the relationship really with you? Or is it with the company, both grades, excuse me, for both, it does create a challenge. The buyer or the seller is believed that the workaround is just to sell the stock. And then then the problem with the assignability just goes away because the stock sale facilitates that contract going with the buyer. Well, the buyer doesn't, the buyer and the buyer's attorney will probably kick back pretty hard and say, you know, that's not there's just too much risk and too much due diligence that has to be done in order to to mitigate that risk in doing so. So I wouldn't anticipate that a stock sale would be likely. So the second way and and probably the most prevalent way to do it is is an orderly transition. So the transfer of any kind of relationship is it takes time. And as you move through the sale process, how do you facilitate? How do you facilitate those those relationships? Well, it takes time. And then it also takes the seller, working with the buyer and working with the customer and the employees. And that's why the Trent training and transition agreement becomes instrumental in that effective transfer. The next question, what environmental issues do I need to consider when selling my company? So buyers and their advisors are extremely sensitive these days to environmental issues, not that they shouldn't that not that they haven't been historically, but certainly the the greater awareness of damage to the environment is amplified. And so, you know, how much it costs to remediate and or clean up an area. So, there is a heightened sense of concern, especially when there are red flags around that particular business. So, you know, those companies that have that own, that are drycleaners gas stations, anything that has chemicals that that can be spilled on the ground, a lot of manufacturing companies if your building is old, and or you know whether you own it or you lease it, and it's it was housed on on something that perhaps a gas station or dry cleaner or some other type of high risk land then you you need to keep that in mind. And then lastly, if the building is old and has asbestos or lead paint bait law Ada, base paint, you also want to be sensitive to that. So the easiest and most cost effective way to, to identify whether or not you have a problem is having what's called a phase one environmental study conducted. And that's just a non invasive study. And it's akin to the way a, perhaps a realtor, or I'm sorry, an appraiser or a real estate appraiser would do a drive by and size up the company or the company or the piece of real estate from from the road without going in and then go back and research. You know, the history of that piece of real estate. And then if there are, there are signs that perhaps it requires an additional study then bore boring samples and different other techniques would be employed for a phase two study. So yeah, I think that answers that question. Okay, the last question is, should I replace or repair equipment before putting my business out on the market? Well, you know, today's business buyers are engaging in equipment, appraisers to evaluate tangible assets. So it's a good idea to make sure that the equipment, the equipment is in good working order and has economic life remaining. The the equipment appraiser is certainly going to be akin to knowing what challenges perhaps that piece of equipment or the package of equipment represents. And if you haven't been updating the equipment, then it might be a situation where the value is penalized as a result for it. So the long answer, the short question is, is, yeah, you probably need in order to get maximum value to replace, or repair the equipment that is in disarray before getting on the market, or at least anticipate that you're going to be penalized for not doing so. Well, that about wraps it up. But before you go, would you like to receive a weekly newsletter of curated articles that I've stumbled upon or am writing about regarding business value and making a company saleable? Well, if so, go to defenders business value.com and sign up for the newsletter. Now, if you have a question that you would like answered, go to, again, the website defenders of business value.com and push the appropriate button. Or you can email me at ed at defenders a business value.com Or you can reach me at Twitter at Ed miso. Thank you so much for spending time with me. If I can ever be of help to you in any way, please don't hesitate to reach out. Have a good weekend, and I'll see you next week. This was another episode of the defenders of business value podcasts are more episodes packed with strategies to increase the value of your business visit defenders of business value.com For shownotes transcripts and free tools to start you on your journey. Subscribe now so you don't miss any future episodes.