7 Critical Things To Know Before Selling Your Business

Selling a business is never a straight forward process. However, the upside can be a life-changing event. When you do decide to sell, there are seven key things you need to know that will help you prepare and optimize your value and chances of a successful exit. Getting it wrong can ruin your opportunity of a sale and can mean many months, or even years, of wasted time and a major lost opportunity. Red flags will be detected by experienced buyers and they will quickly pass on your business.

1. Don’t Live in the Past

The previous success of a business (three or more years prior) is largely irrelevant at the time of sale, especially if it has been struggling in the last year or two. Buyers are interested in recent performance (Valuations are based on the last 12 months) and future sustainability and viability including your current forecast. Failing to grasp this concept will be very costly and waste a lot of time.

2. Buyers Won’t Pay More for Potential

The valuation determined by buyers for the potential sale of your business will be based on the trailing twelve months (TTM) X an EBITDA multiple. I regularly speak to CEOs who believe they have a potential “Home run” and expect to command a top sale price based on perceived potential alone or a big Forecast. This is not how it works and buyers put minimal value on the future. If a business did $10 Million in sales last year, with $300,000 in EBITDA, the value will be minimized in the eyes of the vast majority of potential buyers, despite your lofty Forecast for $15 Million in Sales and $3 Million in EBITDA this coming year.

3. Buyers are Interested in Profits, Not Revenue

Another common misconception is that buyers are easily impressed with revenue figures. This holds true with SaaS software companies, but only to a certain degree. Revenue always sounds good, but when it comes down to it the only number that matters in the great majority of M&A transactions is the Net Profit and EBITDA a business generates. Experienced business buyers want to see Net Profit and EBITDA, not just revenue. Revenue of $10 Million or more will attract them as a potential buyer but EBITDA is primarily the factor for valuation.

4. Buyers Will Verify All Information in Due Diligence

Once an offer is finalized, Due Diligence begins to verify a lot of seller information in a 30 – 40 day period. Due Diligence requires expertise, organization and preparation. You will not progress to the next step of the sales process – the legal agreements – until you pass the Due Diligence phase.

5. Be Both Expeditious and Patient

The sale of your business will be extremely time consuming and require a lot of experience and expertise. You want to keep the sale process on track and make progress on a daily and weekly basis. Otherwise, the sale process will drag on and an excessive amount of your time will be consumed and expenses will mount up quickly. At the same time, show poise, professionalism and patience as this buyer is your future employer. An M&A advisor is critical to lead the sale process due to the time and expertise required to consummate a transaction.

6. Be Honest, Flexible and Extremely Prudent

The truth will prevail and you need to build trust with the buyer. Experienced buyers understand that every business is going to have positives and negatives. There is no such thing as a perfect business so the best method is to be transparent and respond timely to the buyers requests. If you are honest and transparent from the start there is less risk of a deal going sour because the buyer uncovered something during Due Diligence that wasn’t accurate or an instance where the truth was stretched. Honesty is the best policy in all business transactions and selling your business is no different. With that, you must be very prepared and prudent in how you present the information to get the results you desired. Again, an M&A advisor should manage and lead the sale process, as well as, communicate with the buyer on your behalf.
7. You Need an Experienced Business/M&A Advisor to Ensue a Successful Sale

The goal is to consummate a sale at an optimal price and terms. This will require the experience, expertise and a tremendous amount of time invested by an M&A Advisor – from the preparation leading up to the sale, securing a buyer, conducting Due Diligence, advising the CEO through the entire process and keeping the sale on track all the way to the closing.
Contact Mark Hartsell, MBA, President of CEO Advisor, Inc. at (949) 629-2520, by email at MHartsell@CEOAdvisor.com or visit us at www.CEOAdvisor.com for more information or to schedule a no cost initial consultation at your office.

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