If you want to receive the highest value for your business, it’s important to properly position your business for sale. We have found that many small business owners sell their companies for far less than what they anticipated because they had not given sufficient thought to the sale of their business. It’s essential that you consider the business from the perspective of a buyer.
We appreciate that many of you don’t have the time, or inclination to properly perform this effort and suggest that you engage us to guide your exit planning and to help arrange the best timing for you to sell.
Owners who want to sell their business someday should consider their exit plan as soon as they open the business, even though it will not be in the near future. There are six factors that should be considered in order to achieve the highest value for your business.
- Your business should be “situations” free.
Too many “situations” needing explanation and excuses scare off buyers. Problem employees, failed products, excessive inventory, and underperforming locations are just a few examples of that dreaded aspect that bankers refer to as “hair.” You should know what will be perceived as hair and cut it off as much as possible before a potential sale.
- Everyone wants growth.
You should be aware that buyers will pay a premium for a business with growth potential, over a several year period. The most desirable business opportunities are those that exhibit some growth over a several year period. You should be looking to grow your business by at least 5 to 10% a year. If you are relying on a recent growth trend to justify an aggressive growth forecast (and an increased valuation), the first thing buyers will do is to ask why, to discover if it is real, sustainable, and scalable. They are always skeptical.” Any reasonable buyer will be able to identify unsustainable growth that comes from an upward blip in the economy, from price discounting, a marketing blitz, or just luck. It’s your job as a future seller to find the levers to top- and bottom-line growth and deliver quantifiable results.
- Building a business designed to attract specific buyers.
Ask yourself this: Who would likely buy my business, and what tempting product/service/market position can I create that will entice them to pay me what I want for my business.
- Plan your life after exit.
Too many reluctantly decide to sell, begin the process but then abort as a deal comes to the table. Often, it’s because the owner had nothing to look forward to and equates selling the business with being put out to pasture. Having the next chapter of your life clarified and in front of you will keep you rational as the process transpires.
- Run the sales process well.
A carefully conceived and executed sales process is critical. While some owners have selling experience and the skill set to represent their own firm, most need a professional business broker to manage & guide them through the process. All too often, a seller acting as his own agent will hand over valuable competitive data that should never be disclosed until the due diligence phase, or not at all.
- Avoid post-sale headaches.
Many business exits are marred by litigation and problems after the deal closes. Earn-outs for top management are often a culprit, along with other surprises that derail the business. Particularly in seller-financed deals, the business itself is the collateral, and we should be looking to complete a sale that assures the buyer’s success and a clean exit for the Seller. You should choose a strong and competent buyer (even though it may not be the highest bidder) and be helpful to the buyer during integration and beyond.
