There are a number of possibilities. The answer to your questions all reside in how you structure the purchase agreement. You need a small team to pull this off with minimum aggravatation. I suggest a Tax Attorney (who should either also be a CPA or partnered with one), a Corporate Attorney and possibly a Business Broker (if you are not averse to commissions).

Normally there are non-competes because the last thing anyone wants is to purchase a company only to have the former owners take on clients that were otherwise "sold" to them. The standard term is usually 2 years (except for IT firms/employees...a judge ruled some years ago that 2 years in "Internet Time" was ludicrous and 6 months is the precedent for IT workers due to the rapid changes in the information technology landscape). There is also almost always a transition period where old management works with new management in a consulting capacity, up to 1 year in large organizations.

Valuations are are usually based on a number of metrics including year over year sales growth rates, return on equity (ROE), return on investment (ROI), and total revenue. These numbers help achieve a fair value and depending on the afore mentioned figures, they help justify a multiple or premium. Even in today's dismal economic climate, businesses that can achieve high growth rates and ROE/ROI numbers greater than 20% can justify as much as a 10 multiple. For example, 1 million in revenue with solid growth numbers and strong prospects for continued accelerated earnings growth could justify as high as a 10 (or more) multiple and that would yeild a 10,000,000 purchase price for the company. Naturally this is dependent on the type of business and the industry that business is in and the product that business is selling. If you are in a highly competitive business (as opposed to the example above which would suggest a more niche business), you might only be able to justify a selling price of either last years total revenue or the forecasted revenue for the next year. Again, there are a large number of variables. I would recommend getting the advice of a business broker. They have access to the market research and can give you a much clearer view of your industry's landscape. They might also be able to help you window dress your business to fetch the highest possible selling price in advance of an actual sale.


We at OroLatina wish you the best of luck in your sale!

Christopher Lazaro MBA
OroLatina

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