Be ready to sell at all times
It is critical important to have your business ready for the sale process. And that means preparing it well in advance of when you’re planning to put it on the market.
If you wait until you’re ready to sell to optimize efficiencies, your greatest opportunity to build value may be lost. Look for ways to increase earnings and maximize profitability now so you will have an established track record by the time you go to market. By keeping your focus on operational efficiency now, you’ll build value at the closing table
Make sure you’re viewed as replaceable. This may sound harsh, but it is absolutely vital that potential buyers see a strong management team that is nor dependent upon you, the owner, to manage business operations. This is a frequent drag on value. You must demonstrate that the flourishing organization you have worked to build will continue to operate successfully without the same level of your involvement.
Communicate your vision of the future
Buyers are interested in potential-they buy the future, not the past. You must be able to paint a compelling and defensible picture of your company’s path forward and the opportunities that will propel its growth in the years ahead.
Do not leave it to the buyer to understand your company’s vision for the future. You cannot count on them to do the work of selling themselves on your business. T will be well worth your time to develop a cogent, supportable message that powerfully and logically communicates your vision of the company’s future.
Understand your business value & value drivers
The true value of a company can vary widely depending on the fit with any given potential acquirer. As a result, most business owners don’t understand the potential value of their companies. While factors like multiples of revenue or EBITDA can be helpful in establishing some benchmarks, they are far from conclusive when it comes to defining market valuations.
Why is this? It is absolutely essential to understand business value from the perspective of a buyer. Often the motivation behind given suitors interest in your business is not obvious. Their view of its value may be completely different than yours.
For example, you may consider the quality of your products to be your company’s greatest strength, and therefore represents its greatest value. A potential buyer however may be interested in acquiring your distribution network, or your technology-and, be willing to pay a significant premium to acquire it.
Buyers are often willing to pay higher prices based on their economics, synergies, specific goals or even the reputation of your business. It is important to understand all of your company’s value drivers to avoid leaving money on the table.
Avoid surprises self-due diligence
Any serious buyer will perform extensive due diligence prior to consummating a transaction. Any surprises at this stage will have the serious potential to negatively impact a deal. Trust is critical to a successful transaction. The last thing you want to put in to the mind of a buyer is doubt. (“If they didn’t mention this problem, what else might we find?”)
You can avoid any surprises by conducting your own due diligence process with your team of advisors prior to bringing your business to market. Be ruthless…rest assured the potential buyer’s analyst will be. Identify any and every possible issue that may be perceived as a negative through rigorous self-assessment.
By conducting his process well in advance, you will gain the ability to identify potential problems and either eliminate them or mitigate their effects over time long before you begin the divestiture process.
Address customer & supplier concentration
There are two areas of risk that can affect business continuity in the minds of potential buyers: customer concentration and supplier concentration. If your business is highly dependent on just a few customers or suppliers it could have a profoundly negative effect on your Valuation.
Depending on your specific business type, these issues may be unavoidable. Still, there are ways to mitigate the risk. Contracts or consents with key customers and suppliers will instil a greater level of confidence in industries where customer and supplier concentration is unavoidable. Whenever and wherever possible, strive to expand and diversify both your customer base and supplier pool. Anything you can do to reduce risk of concentration will help to increase the value of your business.
Lock in key employees to mitigate risk
Another area of risk for potential buyers lies in your company’s dependency upon a few key employees. If your operation is overly dependent on one or few key players, would-be buyers may be reluctant to move forward at all unless you’ve taken steps to mitigate that risk.
Most buyers do not look to save money by terminating key employees. Rather they focus on retaining a company’s leadership. Whenever possible, lock in key employees by obtaining non-compete or non- solicitation agreements well in advance of a transaction. Try to align the financial goals of management with ownership to create a win-win situation.
Prepare supportable financials
Potential buyers must have absolute confidence in the accuracy and veracity of the financial picture you’re painting for them. The quality of your financials will play a key role in solidifying the transaction.
Your financial statements must be reliable, accurate and available in a timely organized fashion. While it is common to present “recasting” adjustments that may more accurately reflect the operations of the business, make sure these adjustments and projections are supportable and realistic.
Finally, the presence of a strong financial controls and systematic procedures will instil greater confidence in a prospective buyer that your information is reliable.
Optimize working capital; don’t leave money on the table
Business owners often leave money on the table when selling their business by no understanding or managing their working capital. By reducing your company’s currents assets you could actually significantly increase its value.
Higher level of working capital does not increase the value of your company. And, as counter intuitive it may seem, he fact is, they actually reduce it.
By establishing what is a “normal” level of working capital for businesses like yours, and managing to it, you will optimize your company’s value.
It’s what you keep that counts
It’s very easy to become dazzled by high top-line number when you’re selling your business. The true value of the transaction however lies in its after-tax yield.
It is crucial that any deal you make be structured in a tax efficient manner. Again, lead-time is the key here. The longer your lead time, the more tax efficient your deal can become.
Examine your corporate structure. Depending how your firm is set up, you could face excessive tax burden at the time of sale. Consider estate- planning issues as well. Gifting to the next generation may reduce your tax burden significantly. You may also be able to take advantage of differences in the tax rates between jurisdictions.
By considering these issues now, well in advance of a transaction, you could net substantially more when you sell. Again, it’s not what you get- it’s what you keep that counts.
Assemble your A-Team of advisors
The chances are you’ve never sold a business before, and you may never do it again. Since this is likely to be one of the most important financial decisions of your life, this is no time to try to learn on the fly.
Make sure you assemble the right team of experienced advisors to assist you through the process. A seasoned team of professionals that “have been there, done that” many times will be your best asset in avoiding any of the potential costly missteps.
The right team will have dedicated experts in accounting, tax, legal and investment banking issues. Each will play a specific role in the sale process, providing you with the insight, expertise and guidance to make the tough decisions along the way.
It’s often said that people learn from their mistakes, but this is no time or place to put the axiom to the test. You’re likely to get just one shot at this, and you’ll want an experienced team that will make sure you get it right.
Address deal-killers
While there are a multitude of issues that could be outright “deal-killers” for your sale, most can be avoided if you address them early.
Some typical “deal-killers” will most often arise within areas of taxes, environmental protection, employee and pension matters, litigation of any kind and the ownership of intellectual property.
The last place you want one of these issues to rear its ugly head is at the closing table. Take a hard look at these areas and address them now, long before you go to market. Eliminate any problems you can, and mitigate the negative effect any “necessary evils” that remain. And, be sure to communicate these to the buyer before coming to the table.
No company or transaction is perfect, but being up-front prior to coming to the table can keep a “deal-killer” from killing yours!
Keep your eye on the ball
You need to keep running your business and doing the things you’ve been doing to make your business successful. It’s important that you continue to run your business as though you plan to own it forever, especially during the sale process.
Again, assembling you’re A-Team of advisors will pay off here. Your advisors will manage the process and keep it moving forward without overly distracting you from primary missions.
The last thing you want to happen is for your company’s performance to falter at this critical juncture. Often the sale process itself will distract a business owner, neglecting his or her role in what made the company successful in the first place.
Staying focused on running your business will ensure that it retains its value up to and through the transaction closing.