Mkting Plan Pt 2

NL 7

Step 5

Preparing the Business,

Part 2: The Marketing Documentation and Plan.

I've extolled the virtues of a business plan many times in this newsletter. But preparing the marketing plan is much more than preparing a business plan. It includes the solicitation materials, a Profile of the business that maintains confidentiality, a Confidentiality Agreement, a Descriptive Report (similar to a prospectus), a list of entities to be contacted, a plan that integrates the marketing program and a schedule to execute it.

In the marketing plan, you determine who you are going to contact and how you are going to contact them. Are you going to contact them by advertising, direct mail, personal contact or some other way?

Once you get a response, how do you react? What level of confidentiality do you require? When do you disclose to the potential buyer your company's identity?

What is your pricing policy? Are you going to put a price on the business up front or are you going to let the buyer set the price?

How do you answer the inevitable questions: "Why are you selling?" and "What is your asking price?"

As you work with your intermediary, what level of approval do you feel comfortable with? What degree of reporting on progress and activities do you want?

Solicitation Materials

Most marketing campaigns I have conducted involved direct mail solicitation. In this I write a personal letter to the candidate's CEO, Chairman or owner, telling briefly about the opportunity along with its current sales and profit ranges. I usually give the reason for the sale and the general location if appropriate, while not identifying the company. It's important to write the letter, personally, to the head person by name. Even in campaigns where I mail thousands of letters, I sign each one personally.

Sometimes the best approach is to contact the candidate personally, either by telephone or in person. (Even in person, one has to telephone for an appointment.) Before contacting personally, I've found helpful to write out a script, with the pertinent information properly framed.

You may decide to advertise. I've found that advertising for middle market companies in mass media periodicals is a grand waste of time. The *Wall Street Journal* has a section on business opportunities in the Thursday Edition. An ad in there will get you 50 to 100 responses--the vast majority of which are unqualified wantabees and tire kickers. You or your intermediary will spend a vast amount of time talking to, corresponding with and qualifying these candidates with the likelihood that none will qualify. Those that do are looking to low-ball you.

In my over eighteen years in the business, I have found only one buyer candidate that actually closed through a *Wall Street Journal* ad. I know, it takes only one and maybe the one is in the list of *WSJ* responders. My recommendation is to try everything else first and if all else fails, try advertising in The Wall Street Journal. Most other intermediaries feel as I do and that's why the *WSJ* is known as the graveyard for selling companies--it's the last stop.

In recent years, another advertising venue has developed--the Internet. There are myriads of sites that will accept your ad, some for free and others for a nominal fee. I've used the Internet for the past 18 months and have yet to find a buyer candidate that completed a transaction. I continue to use it because it is so inexpensive and electronic responses take so little time-after all, "it only takes one."

Profile

In all searches for buyers, I prepare a document that I call Confidential Profile. It is a two-page document that describes the business, its facilities, its markets and a summary of three to five years of historical financials. The Confidential Profile is written so as to not disclose the identity of the selling company. I work closely with my clients to assure that the document is factual and does indeed not disclose the identity of the company. I send this document to solicitation letter responders along with the request for qualifying information and request to sign the Confidentiality Agreement.

The Confidential Profile is a key link in the confidentiality protection chain. It gives the buyer candidate enough information about the seller's company to decide whether or not it meets the buyer's criteria. For the Seller, it acts as a bridge to get qualifying information and a legally binding Confidentiality Agreement prior to disclosing the identity of the selling company. I also use it as a document to let my associates know of the opportunity, again without disclosure of the identity of the selling company.

Confidentiality Agreement

This document has to be signed by all buyer candidates prior to disclosing the name of the seller. In signing the document, the buyer candidate agrees to:

* Not disclose any information given in the course of its investigation.

* Not to tell anyone that the company is for sale.

* Not to disclose the information to the buyer candidate's advisors without the written permission of the seller or seller's agent.

* Acknowledge that the information given is to be used only for evaluation the acquisition of the seller and is not to be used for competitive purposes.

* Not contact any of the seller's bankers, accountants, attorneys, employees, suppliers, competitors, customers or others who might have information concerning the seller without the written permission of the seller or seller's agent.

* Acknowledge the seller's and the seller's agent's disclaimer to the effect that the giving of the information implies no representation or warranty. The buyer assumes full responsibility for its reliance upon such information.

You might say that such an agreement is one-sided. It is. But in reality, confidentiality is as important to the buyer candidate as it is to the seller. The buyer doesn't want employees, competitors, suppliers, customers or the others to know that the seller is contemplating a sale. Breach of confidentiality could adversely affect the business now or in the future.

Buyer candidates are accustomed to signing Confidentiality Agreements and usually sign them readily. Occasionally I receive comment back asking for a time limit and we usually agree on three to five years.

Descriptive Report

This is the key marketing document. It identifies the company and describes the business, its history, its market, its competition, its facilities, its processes, its financial history, and its potential.

Your business plan is a good basis for the Descriptive

Report.

The report includes three to five years of financial history and/or tax returns and product literature. The report can be 50 to 100 pages long. It is delivered to the buyer only after the buyer candidate qualifies financially and technically and has signed the Confidentiality Agreement.

Who to Contact

My past statistics on where buyers come from breaks down as follows:

* 35% In house databases (people who have asked us to let them know when certain types of companies come available).

* 35% Structured searches (we compile lists of candidates based on our and the seller's judgment as to the likely categories of buyers).

* 15% Seller direction (the seller tells us, "Go see company X, they should buy us." or "Company Y has contacted me previously").

* 10% Referrals.

* 5% Advertising.

Keep a file of likely candidates as they surface. Also keep a file of all those letters you get from intermediaries asking you to sell your business. At selling time these files will give you clues as to how to compile your buyer candidate lists.

As we've mentioned before, competitors, suppliers, customers, employees are usually not the best

candidates for you.

Conclusion

Effective marketing of your business requires a lot of effort. It takes a plan, schedule, proper documentation and thinking through the strategy. It takes a comprehensive search of all the likely buyer candidates (and many unlikely candidates that your intermediary will uncover).

Tip of the Month

Relying on the "old boy network" is not the best way to get optimum value for your business: it takes a comprehensive marketing plan.

Next Month

Next month we will cover Step 6, Executing the Marketing Plan.

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Disclaimer

This publication is intended to help the reader understand the issues involved in selling a business. It is designed to provide information reflecting the experience of the editors and writers in helping sellers of businesses. It is prepared and presented with the understanding that the publishers, editors and writers are not engaged in rendering legal, accounting or other professional service. If legal accounting or other expert advice is sought, it should be acquired from competent professionals. The reader would be well advised to seek such professional assistance in the early stages of any consideration of the sale or purchase of a business.

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