As spring is in the air it reminds us of all kinds of great things, The Masters, outdoor soccer, fly-fishing, and of course everyone’s favorite topic: Is it time for me to sell my business!
As a business owner, you have worked hard and made many sacrifices to build your company. Whether it’s been 5 years or 35 years, owning and running a successful business is extremely challenging. I work with entrepreneurs every day and I have the utmost respect for them as they take on massive risks and responsibilities with tenacity and focus. It is not for the faint of heart.
If, as with most of my clients, you think you would like to sell your business someday, there are steps you can take to not only maximize the value of the sale, but also to make the transaction more efficient, less expensive, and more likely to close. The two best words to any entrepreneur are “Exit Event”, but you have to make it worthwhile. You are only going to sell your business once and this is your chance to unlock the value you have built over the years. I have included below four helpful pointers to consider before you make this important decision.
- Figure out your goals – why are you selling? Is it strictly financial? If so, do you have a specific dollar amount in mind that will be acceptable? Have you done your homework on valuations of businesses in your space? Does it have to do with succession planning? Are you concerned about the legacy of your business or what will happen to your team? Ask yourself these questions as they will certainly inform your decisions.
- Seek advice and support from professionals – while utilizing professionals costs money, it will be worth it. Most of my clients are selling a business for the first time and simply don’t understand (nor should they) all of the intricacies and moving parts of a transaction. If you hire experienced professionals to be part of your team, you will automatically be on a level playing field (or better) with the buyer. For example, if you use the services of an investment banker or broker, chances are they will be able to get you more interested buyers and the best possible price or better terms. In addition, they can guide you in advance on how you may be able to make your business more appealing. If you have experienced legal counsel, the transaction will be more efficient and you will know that buyer’s counsel isn’t taking advantage of you or negotiating a deal on other than market terms. If you have the right accountant, he or she will be able to help you analyze important aspects of purchase agreements, including earn-out provisions, working capital adjustment mechanisms, and financial representations. Do you have a wealth manager? If not, time to get one. They may be able to help you with tax and estate planning but may need to take affirmative steps prior to the closing of the transaction. Remember, these transactions are more complicated than you think and having experienced professionals around you is crucial.
- Get your house in order. Interested buyers are going to want to look under the hood and into every corner and crevice of your business. And believe me, you will be surprised with the volume of requests. Are all of your financial records accurate and up to date? This is a big one and if you don’t have the utmost confidence that your financials are accurate and up to date, wait until you are to show them to potential acquirors. Are all of your contracts executed and organized? Is all of your intellectual property adequately protected? Is your ownership and governance structure clear and memorialized by proper documents? When a buyer begins conducting serious due diligence, if they find issues or problems, it will slow things down, cost you more in professional fees, and may result in price reductions or other negative outcomes as it relates to your transaction. Ask yourself this question – if I was the buyer, what would I want to see if I was conducting due diligence?
- Identify your internal team. If you are going to sell your business, it is going to be a process and will take some time. And remember you have to keep running it while you try to sell it! You are going to need help. Hopefully, there is at least one person within the business that you trust implicitly and that would be able to keep a secret and help you through the process. Bring those trusted individuals in as early as you feel comfortable and lean on them for support. I understand the desire to keep plans to sell a secret for as long as possible and then to make the announcement when you feel it’s best. However, having at least one internal person in the loop and helping will make your life (and the transaction) significantly easier. If you don’t have this internal assistance, your professional advisors can try to help pick up the slack or you could also look for a hired gun consultant to assist.
I hope the above tips are helpful. While every business is unique and every situation is different, I believe these apply with respect to any potential sale. So as you are checking off your springtime to do list don’t just focus on cleaning the outdoor furniture, unveiling the new Traeger smoker and re-stringing the tennis racquets. Focus on your business and making the most of every opportunity. I am always happy to strategize with you.