Selling Your Business?
Selling a business can be a complicated and difficult task. Will you have the time to manage your business, keep revenue and profits strong, employees motivated and be able to manage the selling process all by yourself? What can you do to increase the value of your business to the right buyer? Who is the right buyer? How do you know you are getting a fair value?
These are several questions, among many others, that you need to answer before determining whether or not a sale is right for you and your company
1. Determine why you want to sell and what you hope to accomplish with the sale.
Do you simply want out of the business and are seeking to attain maximum value, or are you interested in securing a steady future for the employees that helped you build the business? Perhaps you prefer to transfer the company to the next generation. Maybe you aren’t quite ready to cash out entirely and want to take some chips off the table while remaining engaged and active in the business.
Knowing the driving motivation and desired outcomes of the sale will help determine what kind of sales process is run, who the right buyer will be and what kind of value you can hope to attain given the end goal.
2. Make sure you have a solid management team in place.
The companies value should be in the business itself — not the intellectual property in the owner’s head. There’s a tendency for business owners to try to micro manage every aspect of their business. Without competent and dependable management in place the level of perceived risk on behalf of the buyer increases. Can the business operate successfully without the owner managing every component on a daily basis? If everything goes back to the owner the value of the business becomes lower to compensate for that risk.
It can take a lot of time to build a strong management team. Because of this we suggest to clients that they should be thinking about a sale many years in advance. Unless you plan on owning your business until the day you take your last breath, you should be thinking about your exit strategy well ahead of time.
3. Engage an independent accounting firm.
Making sure you have complete and thorough financials is of the utmost importance. If the books are not handled by professionals it opens up the potential for missteps that can lead buyers to negotiate for price relief due to uncertainty about the quality and reliability of the bottom line.
Before a seller goes out to market, they should have a third-party firm do a quality of earnings review. Doing so allows us to discover anything a potential buyer is going to uncover during the due diligence process. The quality of earnings report essentially tracks the cash flow of the business, and verifies the stability of earnings
Approaching the deal with complete disclosure and transparency is key to a smooth due diligence process and a timely completion of the transaction. The last thing you want as a business owner is for something that should have been revealed in the early stages to blow up the deal late in the game.
4. Do you want to stay active in the business.
Every owner and CEO should think about what they want to accomplish with a sale. Where do you want to be in five years? What role do you want to have post-transaction? Are you looking to pull all the chips off the table and leave now? Or, are you looking for a strategic partner to realize further financial or operational goals?
The answers to these questions will have a profound influence on how you and your advisory team position the company to the marketplace
Often, CEOs will still be weighing their options when they first meet with an adviser. It’s paramount for us to help them understand the consequences of ball the options. Private equity firms will typically want a strong management team to stay in place; if the management team wants to leave, then it’s time to focus on strategic buyers. A strategic buyer will likely tolerate a weaker or more uncertain management team, because they’ll have the ability to bring in their own people.