Critical Steps
1) 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.
2) 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.
3) 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.
4) 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.
5) 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.
6) 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.
7) 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 transac