Selling your business is a major consideration, especially after many years of long hours and hard work. Your business is most likely your most valued asset in terms of dollars and retirement. Valuations are currently extremely high, but not likely to last for long given that a disruption in the markets is inevitable.
Receiving the proper advice on the sale process, maximizing the sale price and getting the deal done are critical, and are comprised of hundreds of small steps. Here are some important tips if you are considering selling your business in the near future:
- Business Valuation. Understand what the realistic value of your business is today and the varying ways a deal can get done. Make sure you understand the key components of any initial offer. Both buyer and seller need to understand exactly how the offer is made up (cash, assets, stock, deferred compensation, earn out). Both sides also need to understand the details of any protections around working capital, the treatment of surplus cash and balance sheet items.
- Structure the Sale to Protect Your Business. Confidentiality agreements are important, but there are other practical strategies you can use in parallel. Carefully qualify who you engage with in the sale process and only deal with acquirers you determine are serious and have the funds to close. You should only release information about your business that would be appropriate as part of the sale process. It helps both sides if information provided is organized, easy to understand, simple to interpret and supports the objectives of the sale process. A business advisor is critical to prepare and communicate the right information during the deal.
- Get to the Offer Stage Quickly. Whether buying or selling a business, a well drafted offer letter in the form of a non-binding Letter of Intent is critical and provides a platform from which to proceed. It’s in no one’s interest to put a huge amount of effort and resources into a business sale before both parties can agree on an offer that represents a good probability of closing. Negotiate the offer in reasonable terms and do not “spook” the buyer with misaligned statements or demands.
- Manage Expectations and Be Prepared For Due Diligence. Understand the other party’s position. This is key in your negotiations with the buyer and successfully getting through the due diligence process. Do not provide information prior to an offer that would typically be information provided in the due diligience phase. When qualifying a buyer, do your research and consider the merits of bringing in additional potential buyers. In all cases, prepare for the due diligence process by preparing and organizing several months prior to selling in order to make a deal work in your favor. Most importantly, have your financials, accounting and customer contracts in impeccable order.
- Determine Your Role in the Future. Negotiate your role and compensation fairly early on in the process before you are too deeply vested in time and resources. Far too often acquiring companies will push this off until it is too late for you to strike a favorable deal for yourself. You can make a substantial amount of money after the sale, and your involvement in the business for a period of time is critical to make the sale happen. A key part of the process is understanding the other side’s hot buttons, and structuring relationships so that both sides have incentives to deliver after the business sale is completed. This is an especially critical step where a business advisor can negotiate on your behalf where it will be extremely awkward for you to push this aspect of the deal on your own.
- Hit Your Targets Along the Way. It is extremely important for both sides if the business for sale has a record of hitting, and continues to hit, its targets. Not managing to hit your sales and profit targets at a key point in the sale process is a common reason for business sales floundering or falling out all together. Your business isn’t sold until the closing occurs and you never want to create concern or cause your buyer to walk.
- Keep the Sale Process on Track. The process of selling a business can absorb more time and resources than you realize, resulting in high costs and you being distracted from your business. Be very clear early on how the selling process should unfold and make sure you are delivering on your side. The process of selling a business can, itself, represent the initial steps in a trust building exercise which helps as you enter legal negotiations. Keep on timelines and don’t abandon them at any point. Instill deadlines, if needed, and lock in a closing date as soon as the due diligence process is complete.
CEO Advisor, Inc. provides management advisory services, including mergers, sales and acquisitions to CEOs of small and mid-size companies. We address your specific needs with hands-on action and seasoned advice. Contact Mark Hartsell, MBA, CEO of CEO Advisor, Inc. at (949) 629-2520, by email at MHartsell@CEOAdvisor.com or visit us at www.CEOAdvisor.com for more information.