10 Keys to a successful business sale
You started your company twenty years ago in your tiny apartment and worked tirelessly, especially in the initial stages to get the business off the ground and successful. Over the years, the company has grown and has become a household name in your town, resulting in you feeling a deep sense of accomplishment and pride in what you were able to achieve with the business. This business has allowed you to live your “American dream” and also to contribute to the development of your community. You are however now at a point where you are considering selling the business and wants the maximum return for your very successful company; we will examine ten key factors to consider to get the best deal when selling your business.
Don’t wait too long
Timing is one of the most critical skills for business success and is also essential when selling a business. To maximize the returns for your business, you need to sell when the economy is in expansion mode according to Entrepreneur Bret Cenkus. During this time, businesses are seeking to expand, which will result in greater interest in buying companies. You will, therefore, have more bidders for your business and this will increase the likelihood of getting the best value for your business. If you choose to sell when the economy is contracting, you will not get the best value, you, therefore, need to sell your business at the right time and this time is determined by the market, selling at the wrong time can be detrimental from an economic point of view.
Prepare yourself for life after business
Before selling the company that you have operated for the past twenty years, you will need to decide what your next steps will be. Whether you are going to start another business, start a philanthropic foundation, retire and travel the world or spend some more time with your family. You need to have clear-cut plans for your future after selling your business to free your mind from the company and embrace your new journey in life. This is critical for your sanity and well-being.
Spruce up your company
If you want to maximize the returns from the sale of your company, you will need to ensure that the business is in the possible condition to be taken over and seamlessly operated by a new entity. Four ways to spruce up your company for sale include;
– Engaging the services of a Certified Public Accountant (CPA) to review your books to ensure that everything is clear cut and clutter free for the new owners. This will show that your business was well run and efficient which can be a deal breaker in negotiations for the sale of the business.
– Try to decrease the focus on clients. If your company is dependent on a few main clients for a significant portion of its business, you should try not to focus on this but rather on things such as the profitability and growth potential of the company when engaging potential buyers. Buyers tend to think that a change in ownership might result in clients reconsidering doing business with the company, you, therefore, should not focus too much on clients when speaking with potential buyers for your company.
– Succession planning – purchasers of a company, want to ensure that there are some core people in the business that they are buying that can help to guide the company forward. It is therefore imperative that you identify key people within your business that will meet the personnel requirement of potential buyers.
– Be aware of market opportunities – it is critical that you are aware of openings in the market that can potentially grow and diversify your business offerings. You should have a well-researched business plan that identifies opportunities in the market and highlights how the company can take advantage of these with the right partner.
Keep your eye on the ball
When you are considering selling your business, it is essential that you keep your operations going as usual and not make wholesale changes or announcements. If this is done, it might affect your negotiating leeway with potential buyers. Clients and staff might also get apprehensive if they get wind of a pending sale of the business, because of the uncertainty that this creates. It is, therefore, a wise decision not to say too much about the sale of the business until a deal is signed by a buyer confirming such. This will prevent wild speculation and ensure that you get the best possible price for your business.
Involve multiple buyers
It is always noteworthy to engage various potential buyers when trying to sell your business. This allows you to hear different offers and counter-offers and select the proposal that is most suitable for your business. If you engage only one potential buyer, it reduces the likelihood of you getting the maximum value for your company. Inversely, when you engage multiple buyers, you get the best opportunity to get a great offer for your business.
Hire a Mergers and acquisitions firm
One of the advantages of doing business today is that there are specialists available to assist with all aspects of businesses. Whether you need accounting, auditing, marketing, public relations, market research or any other specialist services, many firms are available to you. The same applies if you are selling your business, it is always a good idea to enlist the services of a company that understands the intricacies involved in selling businesses so that you can be professionally guided through the process. Hiring a Mergers and acquisitions company will help you to get the best deal for your business when selling.
Engage other professionals with Mergers and acquisitions experience
You might have one of the most dedicated Financial Controllers in the world that has served your business with distinction for a long time. This person, however, might not have any experience in mergers and acquisitions and therefore not be able to advise you on the best accounting procedures such as whether to go with a stock offer or a benefit buy when selling your company. The offer that you choose might result in a significant difference in the final price that you get for your company. It is, therefore, a good idea to contract a few persons with experience in mergers and acquisitions to augment the knowledge pool available to you and to help you choose the most lucrative selling option.
Have Reasonable expectations on sales price and terms
When planning to sell your business, it is crucial for you to have an idea of what the fair value of your company is. There is a range of selling sales price for businesses of a similar size in your industry, and your aim should be to get a price at the top end of the range. You should be aware of what your business is worth when negotiating with potential buyers and also be mindful of a good offer when you get one. This will ensure that you do not leave anything on the table in the sales process, if you enter the process without knowing what your business is worth, you will not know if you are getting a good deal for your business. The onus is on you to enlist all the professional help that you need to be fully informed about the process involved in selling your company and also to maximize your returns.
Provide full disclosure
Throughout the process of negotiating the sale of your business, you must be entirely above board and disclose all aspects of your operations. Doing this will negate the possibility of the buyer obtaining information from other sources which might result in a full review of all prior negotiations and also raise credibility issues. This is one of the worst things that can happen when trying to sell your company and it has the potential to significantly reduce the perceived value of your business to potential buyers. Full disclosure is a must when trying to sell your business.
Be Flexible and open to creative deal structures
The ability to be flexible and receptive to change is a trait that is critical to staying relevant in business today. This trait is also necessary when trying to sell your business. When negotiating the sale of your business with potential buyers, you might have a particular price in mind and also how you want to be paid. For example, your gross selling price might be 18 million dollars, all in cash at the closure of the deal, however, the market might not be in a position to provide you with this offer, and the best deal that you received is $15.1 million cash at close. What you can do in this situation is counter with an 8-year seller balloon note of $4 million at 8.5% and $14 million cash at close, this will give you more value than you initially sought and will also save the buyer some valuable cash, which is a win-win for both parties. This type of creative thinking and flexibility will help you to achieve the best outcome when selling your business.
About Flatirons: Flatirons Capital Advisors, LLC (www.flatironscap.com) is an investment banking firm that helps privately held companies sell their businesses, acquire other businesses, and raise capital. Our services include accomplishing mergers and acquisitions, obtaining financing, sourcing loans for distressed or bridge finance situations, and financial restructuring. Our unique business model affords sell-side advisory clients the ability to improve their company’s performance, earnings and effectiveness in the short-term, while simultaneously increasing their market value for a future sale. Flatirons has offices in Colorado and Texas.
For more information: Call 303.905.0733, or email [email protected].