The top five (or so) things to do when preparing to sell your newspaper
December 10, 2013
By John T. Cribb
Cribb, Green & Associates
Nearly every newspaper owner will decide at some point that it is time to sell his/her publishing business. It may be time to retire, step up to a larger property, or push in a different direction entirely.
Whatever the reason, there are certain steps an owner can take, to increase the market value of the newspaper and to have a quicker sale to a better buyer.
None of these steps are cast in concrete, as the situation for every publication is different, but in general, taking them will help to attract buyers who are more qualified, keep the property from lingering on the market and increase the actual dollars in the pocket of the seller.
Preparing for the Sale
Preparation, as with so many things, is the key to a successful sale. Although not always possible, it is best to start planning the sale a year or two before it is intended to take place. The further in advance you can plan, the more headway you can make in showing good cash flow (Earnings Before Interest, Taxes, Depreciation and Amortization) EBITDA, compiling complete records, and getting the physical plant looking good. Also, arranging to sell when the business is growing and has the least amount of competition can make a considerable difference in the final transaction.
The tax consequences created by a sale should be determined well in advance of putting the business on the market. Waiting to do this until you are negotiating a deal can be costly, create unnecessary confusion and may even be the cause of losing a good buyer. Such preplanning also will allow you to determine whether or not your tax adviser is competent to represent you in such a major transaction. This is equally important whether you are doing business as a proprietorship, partnership or corporation.
of cash flow/EBITDA
The single most important item to establish for a top dollar sale is good cash flow or EBITDA. By this I mean the actual, usable cash flowing through the business that a new owner will have to service the debt, provide a return on his down payment/investment and for profit. There are probably several items showing on your tax return as expenses that are actually part of your cash flow. An example is depreciation, which, although it shows up as an expense, does not take any actual dollars out of your pocket.
Usually the first action a seller can take to increase cash flow is to reduce labor expense. It is easy for a longtime owner to get relaxed about keeping labor costs in line, and, as a result, total labor expenses can get above the 35 percent to 40 percent of gross revenues generally considered average for smaller newspapers. Any reduction in payroll and employee benefits in the year or years before the sale should show up in increased cash flow. Travel and entertainment expense categories can get pretty loaded up with extras and siphon off cash flow. The answer here is to be fair to the business—that is, make sure the items you are charging off to this category are items that are really necessary to run your operation.
Income not shown on the books and trade-outs are items extremely hard to deal with in a sale, both because they place the seller in a delicate situation, and because they are difficult to prove as income. Most buyers won’t accept either as a solid part of the business outcome, which means that although this is cash flow through the business, the buyers won’t accept it as such. The best bet (for more reasons than outlined here) is to eliminate trade-outs, and show all income on your books.
Strong cash flow/EBITDA is crucial to the value of your newspaper, and working at increasing it before you sell will make a difference in the dollars you realize.
Careful recordkeeping should be a habit with all businesses, but at times is not. Buyers interested in your business want the whole story, and deserve to know it. Far too many lawsuits come from misunderstandings about the information used to portray a business. Make certain that your information is complete, accurate and someplace where you can put your hands on it. It may seem hard to believe, but we have dealt with sellers who could not even produce a copy of last year’s tax return. When information on the operation of a business is unavailable to a potential buyer, he or she will always assume the worst.
Clean and Organized
When a buyer walks into your physical plant you want him to say to himself, “Yes …, this is the kind of operation I want to own” not “What a dump!” The black spots on the floor by the copier where your office worker discovered toner, that pile of advertising hats you bought for the chamber of commerce promotion, these are things you may not notice anymore but a buyer will spot right off. Clean it up, pick it up, paint it up—just like a used car, people will pay more for it if it looks good. This is an area where you can truly make a thousand dollars an hour for a little labor and paint.
The situation that triggers a publisher’s urge to sell is when things are looking bad and going downhill, and of course, this is the worst time to try to do so. Downtrends can take a lot of time and money to reverse, and a buyer is going to pay less for the business if he is the one who has to bring it around. Selling on an uptrend, or at least a stable trend, gives the seller an advantage in that it is apparent that he is under no pressure to sell. In addition the business is headed in a direction the buyer would like to take.
Position in the marketplace
What is your position in the marketplace—are you in the No. 1 newspaper in the area? Buyers are most interested in publications that are exclusive or dominant in their area. A buyer will be leery of a competitive situation unless your paper is clearly the dominant operation. This is in the same category as selling on an upward trend; that is, sell when you are on top of your market.
This is not a discussion of the income tax consequences of a specific sale, but just some general thoughts on the subject. Visit with your accountant, and if you are not convinced that he is a creative tax adviser, talk to business people until you find one who is. A good adviser may have some suggestions before the sale that could save a considerable amount of money. C-Corporations, in particular, can be difficult to get your money out of without paying excessive taxes.
I am sure that some of the things discussed here were obvious, and other may not have been so plain; but, overall, considering them will help you to plan the successful sale of your publication(s). Establishing good cash flow, detailed record keeping, a sharp-looking physical plant and a business that is moving ahead and is on top of the market, and some advance planning on the organization of your business can make a tremendous difference in the length of time your property is on the market, the quality of buyers it will attract and the actual dollars you will receive.
John Cribb is managing director of Cribb, Greene and Associates in Bozeman, MT. He can be reached at firstname.lastname@example.org.