Stress Testing the Owner-Managed Business

 Conducting a thorough stress test on an owner-managed business will determine strategic planning deficiencies and enable the success of the business. A stress test for a cardiac patient consists of monitoring the patient on a treadmill to see how well the heart reacts when placed under the stress of sustained exercise. A stress test for a structure involves placing it under a higher than expected load to see if it is as strong as engineering predicts. Financial regulators place banks under stress tests by using sophisticated software models that allow the testing of certain stresses alone and in combination with other events to see if banks have sufficient capital. These testing procedures consist of the initial inquiry, the application of the stress situation or situations, and an analysis of the performance under stress. It is not necessary to construct a complicated piece of equipment or a sophisticated computer model to accomplish a stress test on an owner-managed business.

The inquiry is to ask “What if . . .?” The application is to follow through the consequences of the event. If a probable event could occur in the marketplace, the application of the inquiry would be to forecast the business experience in the year after the event occurred. If the occurrence of the event will cause the business to lose money without recovery, the application of the inquiry causes the business to fail the stress test. If a business has three owners, the inquiry could be “What would the business experience in the year after the death of one of the owners?” Depending on the role of each in the business, the application of the inquiry would have a different result depending on which owner died. Would it make a difference if a certain owner quit owning because of disability instead of death? Most definitely, for example, if the buy-sell agreement is funded with life insurance, in the case of disability there would be no immediate funding from a life insurance policy. Would it make a difference if the owner left the business? Most definitely, for example, if the owner left to compete with the business and reduced the foreseeable revenue for the business. Would the application of the inquiry cause the business to fail the stress test under any of these inquiries?

While a computer model is not needed, there must be a way to project the economic activity of the business. Generally this can be the profit and loss format of the business accounting on a spreadsheet showing month-to-month performance for a year and allowing for adjustments. With some businesses it may be more meaningful to use a cash-flow format rather than a strict profit and loss format.

Where a probable event in the market will cause the business to lose money without recovery such that the application of the inquiry causes the business fails the test, the analysis and action required will be to anticipate that event with action to create new products or services for the market or find different markets for existing products and services so that the event no longer will cause a failure of the business. If the business cannot generate as extra cash the amount required to make payment to an owner pursuant to existing buy-sell arrangements within the term of time required for the payment such that the stress of one owner leaving the business in a certain way will cause the business to fail the test, the analysis and action required is to adjust the payment and terms of the owners' agreement to more realistically reflect the reality of the business so that the owner can be paid and the business continue.

An important part of the review of a strategic plan for an owner-managed business is to start the stress test procedure by asking “What if . . .?” Do this many times. The more thorough the stress testing procedure, the better the plan will serve the future success of the business.

Creating and Implementing a Marketing Plan

The first of the year is an appropriate time to implement a marketing plan. The marketing plan is the primary base for the business – without customers or clients there will be no business. A marketing plan has the same process as any other strategic (long-term) plan: set goals, determine an action plan to implement and realize the goals, and reassess the effectiveness of the action taken. If you have never made a marketing plan before (or a strategic plan of any kind), the important thing is to get something on paper and start implementing. The plan can be supplemented, corrected, and assessed after it has been implemented, but before implementation it is nothing and of no help. Do not let paralysis of analysis delay action.

Set reasonable, specific, and measurable marketing goals in the relevant areas of concern. Identify and describe an ideal customer or client. Do this from recent experience and from what is apparent about the marketplace. The relevant areas of concern for a marketing plan are current customers or clients, centers of influence for referrals, networking, and principal customer or client recruiting.

Generally, consider the dynamic of the marketplace. What is the nature of the demand for your service or product? Is it elastic, where there is competition and price has a great effect on sales, or is it inelastic, where an increase in price does not decrease sales proportionately. What has changed in the last year? Have customer or client needs changed? Determine the demographic for the ideal customer or client and describe it in detail. What centers of influence exists for the ideal customer or client? Identify all referral sources from the last year. Does the description of the ideal customer or client suggest that there are referral sources that are not sending referrals to the business? If so, identify these referral sources.

With respect to customer or client referrals, consider a goal to increase the percentage of customers or clients that refer you business. What is the present percentage of customers or clients that refer business? Set a goal based on past results and devise a method of monitoring the accomplishment of that goal.

Centers of influence are resources that can provide a sustainable source of new clients. Consider a goal of establishing a relationship with a definite number of centers of influence in the next year. Who are the centers of influence relevant to your marketing? With how many do you have a relationship? Set a goal based on past results and devise a method of monitoring the accomplishment of that goal.

 Networking includes Internet and face-to-face interaction designed to present the business and its management as a competent and responsible member of the business community. The activity of networking allows information to be shared in the business community that can be beneficial to the business through the establishment of its competency and integrity as a matter of general reputation. Consider a goal of effectively participating in community and informational activities that enhance the reputation of the business. Devise a method of monitoring new business activity attracted or enabled by networking activities.

For a potential customer or client who is known, consider a goal of gaining the business of that customer or client within a set period of time.

For each goal, list the actions to be taken to realize the goal.  For example, for customer or client referrals, consider the development of a referral process utilizing thank-you cards, surveys, or meetings; use special events (dinners or social occasions) to keep in contact with customers or clients and create opportunities to introduce friends or relatives to the business; or provide information through scheduled notices or newsletters. For centers of influence, consider specifying events to attend where new centers of influence can be met, joining associations where centers of influence are active, offering to speak to gatherings or write for publications involving centers of influence, and using social networking sites to reach out to and identify centers of influence. For networking, consider developing effective marketing collateral including business cards, capability brochure, information about the business and its story, product or service sheets and capability brochure or information; advertising in appropriate venues; using direct mail as is appropriate; hosting a television or radio show; writing articles for Internet and local publication; hosting public workshops or educational courses; writing press releases on a regular basis; building a website that clearly conveys the capabilities of the business and provides educational resources to prospective and current customers and clients; developing informational and relationship content through blogs, podcasts, webinars, and videos; joining and contributing to social networking sites such as LinkedIn, Twitter and Facebook; implementing a Google Ad Words campaign or some similar variation; and participating in online directories and referral sites. For principal customer or client recruiting, consider sending direct mail to targeted customers or clients, initiating social activities with the potential customer or client, and providing informational resources to the potential customer or client.

To budget the plan, list the goals with the actions to be taken in the left-hand column of a spreadsheet. List the months of the year in the top row of the spreadsheet in the succeeding columns. For every month in which an action is to be taken, place an x for that activity. After that has been done for all activities, replace the x in each month with the cost of that activity. For example, if one activity is to join the Chamber of Commerce, the initial month may contain the cost of the annual dues, and the succeeding months may show estimates of incidental costs involved with attending certain activities. Once all the x's are replaced with numbers, the columns for each month should be totaled and a total column run for each activity row.

To implement the plan, create a marketing calendar setting forth the days of the month when activities should be initiated and completed. Estimate dates as necessary, remembering that what is being created is really a checklist not a calendar. Monitor the plan by making sure that customer or client information is collected to ascertain the source of new clients. On a monthly basis review the implementation of the plan and the monitoring of its effectiveness.

Now that the critical strategic plan for a business, the marketing plan, the success of the plan will depend on adherence to the plan and revision of the plan as monitoring shows what actions are most effective to realize the goals of the plan.

Measuring the Value of a Business Between Owners

The concept of the value of an owner-managed business is best understood considering the perspective of the marketplace. Fundamental to the understanding of business value is that the value will change depending upon the marketplace – more precisely, value will change with the circumstances that create the nature of the market.

Buyers who are involved with the business will not pay for the “know-how” or “good will” of a business that a buyer outside the business would consider purchasing. Generally, an inside sale (where the market consists of buyers involved with the business) will not have as high a purchase price as an outside sale (where the market consists of buyers not involved with the business). The term “fair value” is used in legislation and court decisions to indicate the value of business interests between owners of a business. The term “fair market value” is used to indicate the value of a business to those purchasing the business and not involved in the business. Fair value, the value between business owners, results in computation of an overall business value that is less than a presumed fair market value. A minority interest in a closely-held business will be highly devalued for lack of control by a market consisting of buyers not involved with the business, while a market consisting of buyers involved with the business might place a premium on an interest that when acquired would merge with an existing interest to become a majority interest.

Owners will have as a goal the increased value of the business, but when it comes to measuring the value of the business and then incorporating the value concepts into an owner's agreement which contains buy-sell provisions, the concepts often become convoluted. It can get worse because there are more complications, those involving terms of sale and circumstances motivating the sale.

There is an old saying among negotiators: “If you give me my terms, I will give you your price.” Simply put, if all the proceeds of the sale are not paid immediately then the time involved before payment will decrease the present value of the sale. If the purchaser is not going to pay the entire purchase price immediately, the time factor involved in the payment discounts the value of the price. If purchasing owners do not have the funds to buy out another owner, it is still preferable to have a sale with payment of part of the purchase price deferred. (Usually this means that the future success of the business will determine whether the selling owner is paid.)

If the owner selling the business interest is dead, there are circumstances that create the nature of the market which will cause potential buyers to offer less. If the owner selling the business interest is disabled, there are circumstances that create the nature of the market that may cause a discounting of the price a buyer will offer. If the owner is selling because of a dispute with other owners, especially if the departing owner is going to compete with the business, there are circumstances that create the nature of the market which will cause the discounting of the value of the business interest. Note that none of these circumstances potentially affect the essential worth of the business interest over time – they are market causes for a decrease in purchase price for a certain transaction.

Owners want to enter into buy-sell agreements to avoid the potential result of circumstances that create the nature of the market – that death, disability, separation from the business, or a number of other events could cause a diminution in the value received for their business interest. Where there is an effective agreement, the owners of a business form the market place and agree to buy one another's interests in the event of certain triggers initiating a purchase and sale of interest. However, owners generally do not enter into effective agreements because they underestimate the complexity of the determination of a price in a given circumstance.

One of the most frequent mistakes in buy-sell agreements is confusing fair market value with fair value. By definition, a buy-sell agreement deals with fair value (between co-owners) not fair market value (applicable to a purchase of the business by one not an owner). If the basis for value discussion is some concept of fair market value (derived from an appraisal or a comparison transaction price) during the course of a transaction when enlightenment occurs, there will be an attempt to break the agreement. As an example, where two owners each own equal shares and agree to purchase the others interest at the first death of an owner, there will be a purchase for fair value of a one-half interest that will result in the surviving owner having all of the business valued at fair market value. This situation is often described as a windfall and has been the subject of much litigation, but a careful analysis results in an understanding that there is no windfall and that the purchase and sale was for an appropriate price. If this understanding is not properly documented for the benefit of the parties, related parties, and affected parties (as well as their lawyers), litigation is likely to undermine the efficacy of the buy-sell transaction.

Similarly, where the triggers for the transaction vary, some will try to apply the same value, ignoring the concept that the market reacts to circumstance. When buy-sell agreements offer different prices and terms given different triggers and the rationale for this treatment is not appropriately documented, the consulted lawyers, parties, related parties, and affected parties often advise and initiate litigation.

Generally attempts to simplify this complexity with a formula are also problematic, because conditions will change more quickly than will the formula.

When owners consider a buy-sell agreement and desire an effective agreement, the understanding of value must be approached with appreciation of its complexity. The owners should agree on fair market value and then understand that fair value will be the basis of their agreement. For each trigger of anticipated, potential circumstance, there must be a consideration of the price and terms of each transaction reflecting the marketplace issues. The agreement should specify the rationale and procedure for each transaction. Stakeholders (spouses, potential owners, and key personnel) should be advised to the agreement and understand the relative concepts of fair market value and fair value.

Competition Can Help an Owner-Managed Business

The owner-manager of a business may not readily recognize the benefits of having competition. Many owner-managers would say they want no competition at all. In the economy of the United States, and in most free market economies, a market with perceptible demand will be served by more than one business. Given that competition is inevitable, it is helpful to understand how to benefit from competition. Generally, the benefits of competition are in market analysis, employee acquisition, and sale of the business.

The function of a business is to meet the needs of its customers or clients. The critical question for every business is: what does the customer or client want? If the consumer is asked directly, the information derived is likely to be inaccurate. The actions of consumers provide more reliable information than their words. From the perspective of understanding the market for your business product or service, ask: why does my competitor have customers or clients? In other words, why have my competitors' customers or clients made the decision not to be consumers of my business? Gathering this information involves data about consumers who decided not to buy your product. This information can be difficult to obtain but the effort will be worthwhile. This inquiry will lead to an examination of the competing products or services and an analysis of the consumer decision. For example, if your product or service is better, than the consumer is not receiving enough information from your business before the buying decision is made. If the competing product is of inferior quality but is sold at a lower price, this is valuable information about the elasticity of demand for the product or service. This information will help you make better decisions about the nature of your product or service and how it is marketed.

Training an employee is a significant cost to a business. Attracting new ideas and learning different methods of conducting the business is extremely valuable to the business. Sometimes competing businesses can cooperate, often through trade associations, in the education and training of employees. From time to time, the opportunity to assimilate new ideas and methods can come from hiring a former employee of a competitor. Often, the former employee will not be fully aware of the value of the employee's experience to a competing business. It can be very advantageous to the business for the owner-manager to be aware of the employment activity of a competitor.

In a situation where there is a need to find a buyer for your business, the first choice is frequently a competitor. From the competitor's point of view, it is easier to expand market share by buying the customers than by convincing customers to change their buying habits. From the business owners' point of view, a competitor is already aware of the value of the business and is interested in the business. If there is already a relationship in place, it is easier to approach a competitor about a sale. In some situations, competitors have been able to enter into agreements providing for purchase and sale of competing businesses given certain owner events such as death or disability.

Competition need not be fierce. Competitors can benefit by sharing information and cooperating on educating the marketplace. Where a market is defined into categories, one business may be the acknowledged provider in one category, while another business may be the acknowledged provider in another category. Many times there are ways competitors may benefit through cooperation in raw material supply, marketing efforts, and training. For example, restaurants have discovered that having more than one restaurant in an area benefits all the restaurants located in the area.

Owner-managers of businesses can benefit by analyzing events at competing businesses and communicating with the owner-managers of those businesses. The result of such attention can result in benefits for market analysis, employee acquisition, and opportunities for the sale of the business.

Implementing the Buy-Sell Agreement in a Closely-Held Business

There are owners of closely-held businesses who become disabled or must terminate their employment at the business and fail to realize a meaningful value for their business interest. There are owners, not holding a controlling interest, who will have nothing to say about the outcome of certain business transactions or their departure from the business. There are owners, failing to recruit new owners, who have no one to buy their business at their death. There are owners, failing to extricate themselves from management, who demean the value received for the business because they are an essential part of the business and can no longer be involved to insure profitability. There are many and all varieties of examples of owners not receiving maximum value from their business interest. All of these owners should have implemented a buy-sell agreement in their closely-held business to have received maximum value for their business interest.

Most businesses do not have a buy-sell agreement among the owners because it is quite difficult to negotiate a buy-sell agreement between the owners of a closely-held business. Often the subject matter is difficult to discuss, and the pressures of operating an owner-managed business make it difficult to find the time needed to accomplish this task. As with most complex and difficult tasks, it is best to use a segmented approach and address the various issues one at a time.

The issues that must be discussed and agreed upon can be generally described. The business entity type of the business should be understood in terms of liability and tax consequences for each owner. The group of individuals or entities that own the business should be defined and appropriate restrictions put in place. The governance of the business, including who will make policy and who will be the chief executive, should be clearly defined. The events (triggers) that will cause one or more owners to transfer interests in the business should be defined. The procedure of the transaction occurring after each type of trigger, including funding and payment, should be provided for in detail. For each transaction, the price of the interest transferred should be defined. If the business will act as a buyer in certain procedures, then the means of the business accumulating the funds for the transaction should be provided for in detail. The final task is the consolidation of the decisions into one coherent written document.

There should be a meeting of the owners and appropriate stakeholders to discuss each one of these general issues. For each issue there should be a separate meeting. The meetings should be held at regular intervals. The results of the meetings must be documented in writing. Where issues are technical or outside resources would be helpful, they should be utilized. The documented agreements resulting from these discussions as consolidated into one coherent document will constitute a succession plan.

The succession plan is the basis for the drafting of the buy-sell agreement, a written, legally-enforceable document. Even though there is a written plan to which the owners have agreed, each owner must have separate counsel to review and advise each owner concerning the buy-sell agreement. The exercise of creating the plan will save legal fees overall, but that agreement cannot remove the necessity of each owner reviewing the buy-sell agreement with that owner's lawyer with the perspective of the best interests of that owner as the primary concern.

There are three general phases in the life-cycle of an owner-managed or closely-held business. The first phase is the startup, where the value of the entity is initiated. The second phase is continued profitability, where the business stabilizes, earns a profit, and the owner changes from a producer to a manager. The third phase is where the owner participates only in policy-making and hires management. In the third phase the owner will receive highest value for the business interest because the owner's participation in the business will not be a requirement for the business's continued profitability. An implemented buy-sell agreement can contemplate and assure the transactions necessary to attain the third phase of the business life cycle. Moreover, if the inevitable transfer of the owner's interest happens before the third phase, an implemented buy-sell agreement will provide value for that interest that will be more than would be otherwise received.

Although it is difficult to implement, the buy-sell agreement will provide maximum value for a hard-earned business interest.

As a subscriber to the web site Business Transitions Letter you may download an E-book on Implementing the Buy-Sell Agreement, which treats this subject in a more detailed outline format. Log on and proceed to the download page.

Why Is Values-Based Planning Effective?

An effective strategic plan is one which benefits the stakeholders of an owner-managed business by stating and accomplishing goals acceptable to each owner of the business. Ineffective plans conflict with an owner's values and cause tension and conflict between owners. If there is no strategic plan or if the plan is not effective, the progress of the business toward its goals will be encumbered to the point that the success of the business may be jeopardized. In drafting the strategic plan, the work that is done in forming goals acceptable to all owners is essential to the effectiveness of the plan and success of the business.

For each owner to agree with and support a strategic plan (express or implied), the goals of the plan should appear to that owner to enhance the owner’s sense of well-being, including a sense of self fulfillment. This comes from the axiomatic observation that if one exercises personal choice in the management of resources in harmony with core values, one will likely experience a sense of self-fulfillment and personal well-being. For a plan to accomplish that sense of personal well-being and self-fulfillment for each owner, that owner must perceive that the plan has been formulated in accordance with that owner’s values.

Where values are not defined or articulated, owners will still have a sense of what they are. Plans (express or implied) which conflict with the owner's values will not seem right and not be satisfying to the owner. Most owners are only vaguely aware of the standards and concerns that compose their personal value systems. Most unthinkingly embrace an array of normative standards to which they assume most people adhere. Few have consciously attempted to resolve the tension that inevitably arises when those standards and concerns conflict with the expressed or unexpressed goals of the business.

Generally owners spend very little time discussing goals, instead there are assumptions declared: "we all want to make as much money as we can" or "this is what we have always wanted." Most owners, even if they develop a strategic plan, are not able to articulate values statements that will communicate what are acceptable goals. The formulation of effective goals comes only after a candid discussion between owners who are articulating their values with clear value statements and through that process accomplish the formulation of strategic goals acceptable to all owners.

The ability to engage in a discussion to set strategic goals resulting in an effective plan depends on whether the owners can define their values and then articulate their values in values statements.

To define values each owner should think about the core values that are important to the owner. A core value is a normative principle that informs and shapes thoughts, desires, feelings, choices, and behavior. A core value is not a preference, but an enduring and essential attribute of character. The following are words describing commonly-held core values and examples of words describing attributes within a core value: integrity – honesty, sincerity, authenticity, dependability, stewardship, and personal responsibility; security – self-reliance, self-determination, self-actualization, prudence, health, education, comfort, acceptance, power, and prestige; and beneficence – philanthropy, gratitude, respect, tolerance, generosity, compassion, service, and justice. A values statement provides information about conduct based upon the core values.

To bring clarity and order to the owner’s personal value system, the owner must reflect on the circumstances and experiences that have informed and shaped the owner’s perspective of life, including hopes, fears, and resolutions. The product of this reflection should be discussed with others as is appropriate and memorialized in writing. The writing should be reviewed and altered from time to time to reflect changing circumstances and perspectives.

For the group effort of the owners to plan based on values, each owner must be able to articulate values statements. To be clear, the owner is not enabling strategic planning if the owner announces that the business should be conducted in an ethical manner. While this is a values statement, a values statement more relevant to strategic planning is: “I have made a commitment to my spouse to be out of the business in five years.” This is a complex and important values statement that must be articulated in the planning process. If the business plan includes a provision to retain the present ownership for ten years, there will be a conflict for that owner, and there will be resulting tension between owners.

Each owner should define that owner's value system and articulate that value system with values statements in conversations regarding the conduct and ownership of the business. These conversations will result in increased understanding about the values and feelings of the other owners. These discussions will indicate whether the owners should be in business together and what the strategic goals might be that are acceptable to all owners' values. The plan emanating from this process will receive the full support of all owners and be effective.

Understanding the Business Sale Process Leads to Increased Value

Understanding the business sale process will help the business owner prepare for the sale and realize increased value from the business. In the process of the purchase and sale of a business, there are four phases: preliminary negotiations result in the execution of a letter or memorandum of intent; an investigation of the business by the buyer commonly referred to as "due diligence;" the negotiation and execution of a contract; and the closing of the transaction. The key to realizing the highest possible value for the business is to be prepared for the due diligence phase.

The process often begins with a letter of intent or memorandum of understanding, frequently prepared by the buyer, which is a term sheet or outline of the conceptual terms of the transaction. When accepted and signed by the seller, it indicates that both parties wish to move forward, but often there is language in the document to indicate that it is not legally enforceable. The letter of intent may be accompanied by a deposit towards the purchase price, which might be forfeited under certain circumstances. At this stage of the process, the focus has usually been more on the business and financial aspects of the prospective transaction, rather than on its legal aspects.

Either as part of the Letter of Intent or as a separate document, a confidentiality agreement is executed. This is an essential element of the diligence process due to the nature of the information and documents that will be disclosed between the parties. The goal is to protect the misuse of confidential or proprietary information during the due diligence phase, and thereafter if the transaction should not be consummated. Litigation over misappropriation of trade secrets, proprietary and confidential information can be extremely costly and may come too late to be of significant benefit. Once the confidentiality agreement is in place, the due diligence process may proceed. The process of diligence begins with the designation of the persons who have authority and knowledge to make inquiries for the buyer and disclosures for the seller. In addition, especially in the case of the buyer, a person should be designated who can be contacted if in the course of the diligence process there is a party who is not responsive. It is helpful to establish a time line for the completion of certain tasks, as well as assigning responsibility for the various tasks.

The sequence of these phases may be influenced by a number of factors. The seller may wish to have an enforceable contract prior to allowing diligence, and in that case the contract for sale would be executed but provide for a period of diligence and that the purchaser's performance is contingent upon acceptable investigation results. A diligence investigation may precede preliminary negotiations, especially where the buyer may be in a position to access the diligence information (such as where the buyer is a minority owner of the business). It is not unusual to perform diligence on seller's disclosures as contemplated by the schedules to be attached to the contract. Frequently, the contract is executed at the time of closing, even though there are a number of reasons why this practice may not be advisable.

Regardless of sequence, the due diligence phase creates the integrity of the transaction. Due diligence is understood by the legal, financial and business communities to mean the disclosure and assimilation of public and proprietary information related to the assets and liabilities of the business being purchased. This information includes financial, human resources, tax, environmental and legal matters. From the perspective of the buyer, information provided by the seller is confirmed and additional information about the business is directly obtained. From the perspective of the seller, accounting and appraisal information is directly communicated to the buyer confirming issues of value and identifying potential obstacles to closing.

The contract will provide for the seller to make certain covenants and warranties based on schedules of information attached to the contract. The accuracy of these disclosures is established by the diligence process. There will be, however, certain aspects of the business, such as unknown liabilities or future revenues, that cannot be confirmed. On these items, buyer and seller will make certain agreements which will have the effect of allocating risk between the parties.

The nature of the diligence inquiry lends itself to a checklist approach. The checklist is a starting point - if followed blindly it will lead to unreasonable and redundant requests, which will antagonize the seller. Certainly if the diligence inquiries are not carefully drafted to be reasonable and appropriate to the business, the seller is well within reason to object to the diligence request. On the other hand, if the approach is not thorough and coordinated between the various experts conducting diligence, there will be oversights in the buyer's diligence inquiry. Moreover, there will be issues of confidentiality such that the process must comply with confidentiality concerns of the seller, especially if the transaction is not closed. All of this contemplates a diligence effort that is the product of cooperation between buyer and seller. An example of a due diligence checklist may be found at Due Diligence Checklist.

The contract will include the schedules agreed upon by the buyer and seller in the diligence process and will contain the terms of the agreement between them, including requirements of performance such as elimination of certain liabilities by the seller and payment of the purchase price by the seller. The closing indicates that all preliminary actions or contingencies have been satisfied and that all of the parties agreements will merge into the written contract of sale, which will control the relationship of the parties after the closing when the buyer will own the business.

The buyer will project the future operation of the business after closing. The buyer will be concerned whether after closing the buyer have to keep the services of the selling owner to have the business operate appropriately after the sale. If so, the buyer will pay less for the business. The primary step to obtaining maximum value for a business is to install non-owner management so owner-managers are not essential to the business.

A review of the due diligence checklist is indicative of the work involved in selling and buying a business. To prepare for sale, use the due diligence checklist and conduct a diligence investigation on your own business. If you were a buyer looking at this business, would you buy it, or if not, why not? This will be a guide for preparing your business for sale and deriving more value from your business when you do sell.