We did not see this coming but Premiums are being paid for companies that are selling today. Companies that would have topped out at five or six times EBITDA three years ago are going for seven, even eight today.

The logic is simple — an imbalance of supply and demand.

On the supply side there are very few companies in play today. Most businesses have performed poorly during the recession and their owners are not proud of the financial performance. They know the time to sell is when profits are high.

On the demand side, the number of buyers has not declined from where it was three and four years ago. The numbers of individual buyers has held steady, maybe even increased. The number of industry (“corporate”) buyers has declined only slightly. The number of private equity groups has held steady and they’re more aggressive than ever.

The result is a huge imbalance between supply and demand that dramatically favors sellers. Lots of buyers picking over few quality companies available today. Buyers are paying, and sellers are receiving, premium prices. It’s times like these that deals get done. Business owners that wish to transition out at maximum value have, potentially, a window of opportunity here that might last a year.

The good news for management teams is that the most active buyers today are the private equity groups. They typically want and need existing management teams to stay in place. To continue to run the company. They typically will give existing and proven management teams stock options that will, in effect, give the managers a “piece of the action.” And in cases where a manager or managers owns a part of the selling company (or has other cash available to invest in “newco”), the manager can earn a nice payday and also roll some of his or her equity back into ownership in the business. Invest alongside the new investor at attractive rates. Most private equity groups welcome this — even encourage it.

Amazingly, today is a great time to get deals done. Whether it’s the business managers putting a deal together to buy out their owner or the owner working to cash out but wishing to place his loyal and tenured managers in an enhanced position going forward, today’s as good a time as there will ever be.

For assistance, call Acquisition Advisors today at 877-525-4321. Ask for a dealmaker.

When embarking on this journey, consider the following suggestions:

1. Give deference to the unique talents, interests and needs of each family member. Rather than arbitrarily dividing the wealth equally, rationally assess the particular needs of each family member. Look at each individual’s goals, objectives and ability to handle wealth.
2. Empathize with those who contribute to the success of the business. Put yourself in the shoes of family members who have helped build the business with their talent, sweat and tears. Is it fair to divide the business equally among the participating and non-participating family members alike?
3. Time to diversify? There is a great deal of truth to the adage “Avoid putting all of your eggs in one basket.” Is there wealth outside of the business that can be transferred to non-participating family members? If not, it might be just another message that it is time to diversify.
4. Buy-out non-active family members. If dividing your business among all family members is your ultimate decision, consider a plan that includes a means by which the active members may buy-out the non-participating family members.
5. Don’t let taxes wag the dog. Taxes are important. However, they should not be the driving force in developing your succession plan. First, identify your goals and objectives for the business and your family. Then, investigate strategies for tax minimization.
6. Get expert advice. This typically means accessing one or more of the following professionals: attorney, accountant, trust officer, financial planner and business appraiser. The bottom line is that the final product requires the expertise of professionals who do this type of work for a living.
7. Communicate the plan.  As soon as reasonably possible, meet with the family to communicate the plan. The purpose of the meeting is not necessarily to gain approval, but to outline your goals, explain how the plan meets the goals and answer questions. It’s best to get everything on the table as early as possible rather than wait for someone to be surprised.
8. Revisit the plan. Never put a plan to rest. To meet ongoing changes the plan must be regularly reviewed and updated.

This article was contributed by James P. Weller, J.D., LL.M and Manager of Wealth Planning, Bank of Oklahoma Personal Trust Wealth Management Department, and originally appeared in The Business Owner Journal, the lead publication of Acquisition Advisors’ parent company, DL Perkins, LLC circulation.

“But that’s our only way out!” shouted a shocked lieutenant.

“Yes, burn the bridge,” insisted the commander. “Our only option will be to defeat the enemy.”

Sometimes, if the job is really tough, the only way to ensure success is by making it the only option.

Assuming ownership of a new business is one of those tough, scary-as-heck jobs.  It’s tough for the business buyer. It’s also tough for the seller, employees, vendors, customers, et al. Nobody’s comfortable with change. In a business purchase-sale transaction, if you don’t burn the bridge, retreat will be the more likely result.

One of my favorite quotes is “The path of least resistance makes crooked rivers and crooked men.”

Buying a business is not easy. Neither is selling one. An often-discussed and occasionally attempted “path of least resistance” is to “let the buyer work in the business for a while.” That way the buyer can get more comfortable with what he is buying and the seller doesn’t have to immediately and abruptly begin life absent the “owner” title. This is a natural “middle ground.” But it does not work.

I know, your situation is different. So go ahead. But be prepared to waste a lot of time and energy – or worse.

Buyers unwilling to take the plunge either don’t have the money or don’t have the guts. Or they could have other plans altogether. Take the case of Paul Westing. He owned a company, and finally found a buyer – Kelly – who was willing to pay a fair price. He was also a nice person. Kelly did have money – quite a bit – but darn it if by a strange quirk he could not get his hands on it just yet. His explanation made sense, so it was decided that Kelly would work in the business until his money became available. All the better it seemed.

Four months into the arrangement, Kelly failed to show up for work. Turns out he had embezzled cash, credit cards and other valuables. Another lesson here: If the buyer is offering more than others, there may be a good reason.

Sellers also get cold feet. Serious buyers (those with both guts and money) should be aware of this. Ask Danny Gainsburg. He worked out a deal with the owners of a successful bookstore. Together, they agreed on the path of least resistance. They’d “move slowly” and introduce the buyer over a few years. But the employees became suspicious and, once the plans were announced, resented the subterfuge. And, of course, the employees were not comfortable with a new boss. He was different. The employees undermined the newbie and eventually the buyers buckled under pressure. Mr. Gainsburg wasted two years of his life.

Perhaps your situation will be different but take it from a guy who has spent years putting buyers and sellers together. The business purchase-sale transaction is one that is tough for all involved. I don’t recommend that you first dip in your big toe. Wait until you’re good and ready. Then take off all your clothes and dive in.

For most of us, the only questions are when and how.

To be sure, timing is critical. The time to sell is when your business is on a good run of consecutive annual profits. The best time to sell is when your revenue and profits have been growing, the economy is hot and times are good in your industry.

That’s right. Buyers want companies that have established growth and profits, and the price they’ll pay will be some multiple of annual profit. Before you spend time trying to find a buyer, focus on building a proven profit engine. Then, remove all of the following from your company. They sap value and turn away buyers:

Customer concentration: No customer should account for more than 10% of annual revenue.

Vendor concentration: If your primary vendor “went away,” would it have an effect on your business?

Owner dependence: Do you play a vital role in your business? If so, you have a problem.

Site Dependence: Does your business depend on a particular site or facility? Can the buyer be sure that he or she will continue to be able to control the site and at a predictable price?

Product or Service Concentration: Are you a one-trick pony? If you have just one product or service, your business may need to diversify before you try to sell it.

Concentration of talent: Does your business depend on one or two key people who would be difficult to replace? Buyers will shy away from businesses that could be badly hurt by the loss of a single relationship, be it an employee, representative, vendor, customer, et al.

Lack of Growth: If your business isn’t growing, you will have a hard time selling it for an attractive price.

If your business suffers from any of the above limitations, you’ll likely be disappointed by what buyers are willing to pay. You might be disappointed regardless because private companies often don’t sell for substantial premiums, but the listed limitations will substantially deflate sale price and terms.

So get the business ready. Then, when the timing is right, what next? How do you go about it?

First, understand that selling a business is a complex, time-consuming and risky endeavor. To get an honest price, you’ll need more than one buyer. Locating and working multiple buyers takes time and savvy. Even if you could handle it, you’ll risk looking desperate, greedy, flighty, or all three.

Sure, we’ve all heard about the sellers who represented themselves and “did just fine.” But I guess you’ll know if the pot of gold seems to be coming in for a landing. If it’s not, I suggest you find an experienced, educated, honest, diligent and confidential person (or firm) to make it happen – and not just anyone. You’ll want an individual or firm that  is in the top five percent. If your business is small and likely will sell to an individual, hire a local business broker.

If your business can legitimately attract large corporate or investment group buyers, find a merger and acquisitions intermediary (or firm) with those kinds of connections and experience. Find one and then, once you start, get it done. The word eventually will get out on the street despite your best efforts. The best protection is to move fast and get a deal done – before your offering goes stale and the economy weakens.

Note: There are a few national “merger and acquisitions” firms that put on a great show (typically a local seminar), use all the buzzwords, and tell you they can sell you for big money if you will just pay them $20,000 to $50,000 up-front. Don’t do this! No matter what they’ve said and how pretty their fancy charts are, they’re in the up-front fee collection business – not the business-selling business. They prey on the hopes and dreams of the honest and trusting business owner (and they make a lot of money doing it).

The fact is when you decide to sell your business you must enlist other professionals. It will be expensive, but the investment you make will lead to a greater payoff. Doesn’t that sound like something you’ve said before? It’s good advice.

What? You still think you can do it yourself? Consider the following:

• Emotions: Even though you may be the kind of person who is skilled at keeping emotions in check, when it comes to your little slice of the American pie, you’re bound to be emotional.
• Judgment: There is no way you can see your own business objectively. Either the limitations of your business are too deeply etched in your soul and you under price, or your expectations far exceed what the economics of your business will support. Either way, you’re wasting time, money and opportunity.
• Time: How much free time do you have? If you’re like most business owners, you work 40 to 70 hours in a typical week. Why? Because your business needs you, of course. So where are you going to find the hundreds of hours that it can take to complete a successful business sale transaction? Now is not the time to let business performance slip. You should focus on increasing revenues and profits and delegate the time-consuming business sale tasks to a good intermediary.
• Special Knowledge, Skill and Experience: You own and run a business. The skills that you have are rare and valuable. But it is unlikely that you are an accountant, attorney or business intermediary. Selling a business takes specialized skills and abilities. You’ll want to gain them through representation.
• Adversarial Wall: Why are representatives used – by individuals, companies and governments – to negotiate  important agreements? Because it works. This strategy breaks down the adversarial wall that naturally arises between buyer and seller when the stakes are high. For the seller of a business, it protects the seller’s relationship with the buyer (key to getting a good deal done) when it’s time to get tough. In other words, if you say “I want more,” you’re greedy. If your representative says it, he or she is just doing his or her job.
• Confidentiality: You don’t want your employees, customers and competitors knowing that you are selling your business. It could hurt your company and your sale price/terms. The key is to move swiftly and introduce the business only to buyers who are pre-qualified. Of course, as soon as the business owner approaches a buyer prospect, his identity is revealed. Independent reps can qualify buyers without revealing the identity of the seller.

One thing you may have in common with other business owners is your dislike of paying professional fees. You want to engage their services only when it is absolutely critical. Well, selling your business is one of those absolutely critical times. It could be the most important economic decision of your life. As we discussed above, it will be an intricate and time-consuming task. Even if you could do it, who is going to continue to run your company – and keep it successful – while you spend the 300 to 900 hours required? You will need to budget for the services of three professionals:

1. Business Purchase/Sale Expert (“Dealmaker”)
2. Legal Expert
3. Tax Expert

The only one of the three who is proactive and strategic is the dealmaker. Begin by finding a great dealmaker to handle the project. If all goes well, you’ll have ample time to secure the legal and tax assistance.

Well? I guess many do. And they leave a big mess for the business and family unless they do considerable advance planning, work and communication.

Others, of course, exit of their own volition rather than wait for divine intervention. They do so to enjoy “retirement,” do something different while their skills are still sharp or to cash out when the business is on top.

One thing’s for sure – you’re the boss. You can have it any way you wish.  Die in the saddle or sell and take a traditional retirement. If you think I’m being trite, think again. Some business owners just don’t want to do anything different. They continue to own, and manage, well past retirement age. That’s OK. It’s motivated by joy, fear or both – joy of working and fear of retiring. They either love their jobs and they can’t see doing anything else, or they are scared of retirement and the lack of “something to do.” For these people, the amount of sale proceeds is often less important – mainly because they’ll have more years to fund retirement accounts using company funds and fewer “retired” years to finance.

Others will want to do something different. Retire, or have a second career, or not stay “beyond their time.” If this is you, you’ll likely want to maximize the after-tax cash you obtain from your business. The reason is simple – you want to have the funds necessary to fully live out the next chapter of your life. In short, you will sell your company – and try to maximize proceeds. Many people just don’t want to quit.

Whichever option you choose – retire or ride it out – a lot of planning will be required. With the former, a business sale is complex, time-consuming and risky. Business owners can waste a lot of time and money trying to get a deal done. With the latter, mechanisms must be put in place to ensure that the business and family are not placed in turmoil when something happens to you.

Whichever you choose – Acquisition Advisors has information that will help you make it work.

Typically, the business owner forms an ESOP trust, a legal entity created with the help of a lawyer. The newly formed ESOP trust then takes out a loan to purchase the owner’s common stock. The loan is collateralized by the purchased shares and often a seller guarantee. The company then contributes a portion of its monthly cash flow to the ESOP, deducts the amount as a retirement plan contribution, and the ESOP uses the funds to repay the funds that it borrowed. If the ESOP does not use leverage, then the payments go directly to the seller as payment for his or her shares. In either case, shares are then allocated over time to employees as they earn the benefit and meet vesting requirements. In this way, the owner’s stock in the company is purchased by the ESOP and distributed to the employees.

The advantages of the ESOP begin with the seller’s ability to defer capital gain tax. This can be done if the business is a C-corporation, owns a 30 percent or greater stake in the business, and the seller(s) invest their proceeds in domestic corporate securities within the first 12 months. In addition, company payments to the ESOP to repay borrowed funds, both principal and interest, are tax deductible. Moreover, if the company is 100 percent owned by the ESOP and elects to be treated as an S-corporation for tax purposes, all of the earnings of the company are exempt from federal income taxes, just like a qualified retirement plan. Finally, employee ownership not only may improve company performance but may allow management and employees to maintain their independence.

But the benefits described above come with strings attached. First, ESOPs are costly. Some practitioners say that setup fees, much like real estate commissions, run between 4 and 7 percent of the total value of the business. Annual administrative fees for yearly business valuation and required recordkeeping run in the five to low-six figures. Second, most ESOP buyouts must be funded with debt, which raises the business’ financial risk and cash flow burden. Only companies with strong cash flow need apply.

Next, few buyouts can be effected with 100 percent leverage. As such, the seller must seller-finance and/or agree to sell blocks of stock over time (i.e., years). This also brings into play the prospect that some portion of the seller’s shares will be for minority blocks, which will suffer a minority interest discount price. Finally, as mentioned, some lenders may require the seller to personally guarantee the ESOP debt and/or pledge the ESOP proceeds until some amount of the borrowing is paid off.

In summary, the ESOP offers powerful and compelling benefits – but it’s not for every person or every company. It adds an ongoing layer of cost and usually involves the use of leverage, so good candidates will have healthy profits and cash flow. It also often requires that the seller accept a buyout over time and bare some ongoing financial exposure to the business – at least for a few years. If these aren’t deal killers, you may have a lot to gain from an exit by ESOP.

Ms. Carol Mayo Cochran of REDW Business and Financial Resources, LLC (www.REDW.com) contributed her considerable expertise for this article.

Most people retire in their early 60s. Millions dream of retiring into a life of leisure. But it’s your life. It’s your business. Do it your way. Don’t sell. Just make arrangements so that when something happens to you, the business will go on and the family will not be left with uncertainty. Do the following:

1. Get out of management: How can you insulate the business from the risk of “something happening to you”? Make yourself unimportant. Get out of management. Remove yourself from the organizational chart. Get to where you can take two months off and the business does not miss a beat. Your quality of life will improve and you can spend your time focusing on leadership, vision and growth initiatives.
2. Automate ownership transition: Selling a business on the open market is a real chore. You probably don’t want to pass this job on to your heirs. A better solution is to determine, in advance, whom you want to succeed you as owners. Certainly, you’ll want to discuss this with the recipient as well as your legal and financial advisors. Typically, it’s a spouse, child or employee. You’ll want built-in mechanisms that deal with financial and tax implications of your structure. Insurance can be a tremendous tool for dealing with timing uncertainties and contingent financial obligations. Given ample time and skilled planning, almost anything is possible. Just be sure your plan does not cause undue hardship (financial, tax, legal or otherwise) and that there is no dispute over control.
3. Establish who will step in if you become incapacitated: You’ll want to provide, in writing, a clear protocol for when and if you may be deemed unable to manage your own affairs (and those of the business); who will step in to take your place; and any limits to that person’s authority.
4. Provide for your family: Often, the business is the main source of wealth for a family. How will your plans for your business impact your family? Will they lose their source of income? Will they inherit financial or managerial obligations? Will they inherit wealth that could cause problems? Will your plans Unleash disappointment or jealousy? These are critical issues for any family. You’ll want to investigate the various scenarios; talk to experts; and likely prepare your family, in advance, for what the future holds.

Laying the groundwork to “do it your way” will take a lot of time, work, thought and the assistance of experienced experts. That will be nothing new to you. Nothing good comes without hard work and sustained effort.