Selling a business in the media, entertainment, creative, film and TV industries? 10 Things to Consider

The Biz Blog

September 06, 2011 by Stuart Gross

Are you the owner of a small or medium-size
business in the creative of media industry who dreams of “getting
out” and retiring, writing a memoir, or simply getting away
from it all? Thinking about selling your business? In today’s economic
climate, selling your media or creative business can be a
complicated and daunting experience.
The skills and knowledge you acquired by running a successful
business are not necessarily the same skills you will need to sell it.
Here are 10 things to consider:
1. Am I REALLY ready to sell my business? One of the most
important questions a buyer has is, “Why are you selling?”
Selling your company is a life-changing event, with both
positive and negative effects on your financial condition.
Your mental and physical health may also be affected. You
need to know if you will have enough money, moving forward,
to live the way you choose. It is a very big decision. …And you
need to be able to answer the question for potential buyers as
well as for yourself.
2. Can I sell my business to a new owner? Is it transferable?
If I go, can someone else take my place? It’s not just your
creative skills that may need to be transferred; it is also the
relationships that mean business for your business. Can a
new buyer do what you do and maintain and attract business?
You may need to stay on board for a while to make a transition
work properly. Sometimes the choice to stay on helps you to
build the financial base you will eventually need to retire.
3. What effect will the process have on my clients, my employees,
and my daily operations? There are some real challenges
in the process of selling a business. It is important to keep
your confidential information from the public. You must make
sure that the impending sale does not create concern and
problems with your employees and your clients. Your relationship
with your landlord, if you have one, needs to be
handled with care. During the process of meeting, qualifying
and negotiating with buyers and the complexities of a sale,
you must still be able to keep your focus on the continuing
operation of running your business.
4. What is my business really worth? Valuation of a creative/
media/entertainment business is based on several key factors:
A. How much money can a buyer expect to earn after
taking over?
B. What are the barriers to entry that might stop the buyer
from starting his own similar company?
C. What is the value of your assets, equipment, inventory,
improvements etc.?
D. What are the risks and growth opportunities of
the business?
For businesses under $10 million, the multiple of earnings
method is the most common basis. The adjusted earnings of
the business is multiplied by a general index for that industry
and type of business, and then adjusted by financing issues,
growth potential, inventory, asset value, etc. A well-priced
business is critical to buyer attraction and critical for the
seller in getting the value he has built.
5. Should I use a broker? Once you decide to sell the business,
whether or not you use a business broker should be a priority
consideration. In the media related and creative businesses,
any representative you choose must have industry experience.
A great deal of knowledge, work and time goes into valuing,
promoting, marketing, qualifying buyers, negotiating, financing,
completing a transaction and effectively transferring the
operation of a business.
A broker who understands, or has been in your industry will
realize that they are seeking a truly special kind of buyer.
He should have the ability to find and attract that buyer. A
broker who is active in the industry will already be working
with active buyers and can identify potential strategic buyers
for the business.
Well marketed, priced and negotiated deals may often net
the seller more than if he pursued and arranged for the company’s
sale by himself.
6. What kind of buyer is capable of taking over this business?
Ideally, you want a buyer who is genuinely interested in this
business, one who has the skills necessary to run it, and the
financial wherewithal to make this purchase.
Because the “right buyer” at the right price will sometimes be
a one of a kind find, you must be prepared with all of the information
that a qualified buyer will demand. The good buyer
will be asking lots of questions – this is perfectly normal and
necessary. The “right buyer” will respect your confidentiality,
and will agree to sign a “Non-Disclosure Agreement.” However,
the “unqualified buyer” can become a very expensive waste
of time.
7. How do I market the business? The first thing to be done
is to compile a complete information package, which should
include the history of the business, description of the industry,
competition, clientele, marketing, opportunities/threats, products
and services, etc. It should also include at least three
years of financial information and analysis of discretionary
earnings, equipment and inventory.
The normal process for marketing a business is to post it for
sale on the plethora of listing sites on the Internet, to contact
known buyers interested in this kind of business, or to go
directly to targeted strategic buyers who may include competitors,
related businesses or aggregators in that industry.
8. How do I make a deal? These negotiations are based on a
balance between the buyer’s perceived value of the business,
(his or her potential, earnings, ROI, future value, the ability to
pay for the business or operate the business, earning a living
wage and paying off financing if any) and the seller’s perceived
value (does the purchase price replace my salary, is it
enough to give up a business I have built, is it worth more to
the buyer than it is to me?)
Negotiations require objectivity, an understanding of your own
valuation and a willingness to structure a win/win situation.
Often third parties such as business brokers can take the
emotional spin out of the deal making.
9. What about financing? A business acquisition can be done
in any combination of cash, seller financing, bank financing,
earn outs, etc. Earn outs are typical in deals where the seller
and buyer need to cooperate to make the future earnings
happen.
10. Structuring the ACTUAL SALE. How does the seller go about
with the transfer of the business assets, including inventory,
equipment, goodwill, intellectual property, brand equity, customer
data bases, etc., into a new or existing entity for the
buyer? There are many ways to accomplish the actual sale,
but for most small and medium sized businesses the process
can be done in California through an Asset Purchase Agreement.
As such, all of the assets are transferred to the buyer
in an escrow process, which is usually as manageable as the
sale of a home. If you need to sell the actual entity as in a
stock sale, you will need quite a bit more guidance.
The sale of your business, especially one that you have built and
run for a long time, is a life-changing event. The business is
usually the most valuable thing the seller owns. The purchaser
is often using his life savings or leveraging his possessions to
make this happen. This is serious business and should be given
its due care and consideration. You need to be guided by your
trusted advisors and be prepared for all of the exigencies of the
process. At best, it can be the financial realization of a life’s work.
____
Stuart Gross is a media business sales
& acquisitions expert with more than 30
years of experience in business, film and
television production, entertainment, and
media. As founder of Harmony Pictures,
Gross executed one of the industry’s
first IPOs for a television commercial
production company.
He can be contacted at sgross@bizex.net. 310 882 2200 Ext.118

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