14 Ways to Prepare for Selling Your Business

For many entrepreneurs, the thought of building a successful company and eventually selling it for tens or hundreds of millions of dollars represents the entrepreneurial dream. You can increase the likelihood of achieving this goal by taking specific steps to prepare your company for a successful sale.

1. Increase Your Growth Rate
A Key metric of value, especially for technology companies, is to break out of 10% growth per year and increase your growth rate to 30% – 50% per year. This may take a very different approach than you have used in the past and you may need expertise and help to get there. Prior to and during an M&A process, it makes strategic sense to grow your sales efforts, which may mean hiring additional sales reps and increasing your overall investment in growth initiatives.

2. Growth of your Sales and Profits
Focus on substantially ramping up Revenue and Profit. Along the lines of Growth Rate is increasing your Sales (Revenue) and Net Profits to bolster value. EBITDA (earnings before interest, taxes, depreciation and amortization) is primarily used as the key metric in mergers and acquisitions (M&A) for valuation purposes. The higher your EBITDA, the higher your valuation will be at your exit.

3. Focus on Your Financials
An audit or accounting review of your financials is likely to be required as part of an M&A process. You should consider having your financials audited by a reputable auditing firm as part of your preparation prior to an exit. An accounting review or full audit will give your buyer confidence in your financials and will educate you on what a GAAP audit/review looks like. The importance of proper financial reporting cannot be overstated. For M&A purposes, focus on what the acquirer is looking for to get a transaction completed.

4. Recurring Revenue Model
A recurring revenue or subscription model will allow you to get a higher EBITDA multiple and thus a higher valuation. Software-as-a-Service (SaaS) can be challenging to generate substantial Net Profits, but can be extremely effective in building value toward a lucrative exit.

5. Address the Skeletons in Your Closet
Head off any blemishes or issues prior to the Due Diligence process. If there are any potential or real fires, put them out prior to commencing an M&A process. Address issues head on and be transparent with anything that a buyer may consider as “hair on the deal.” There is absolutely no reason to apologize for anything that happened in the past. Put your emotions aside, be objective, explain your issues and move forward.

6. Create a 3-year Financial Projection
It will be necessary to create a 3-year financial projection. Make certain the financial numbers you project are aggressive, but achievable. Hitting your financial projections will be absolutely critical once you begin the M&A process, including during the Due Diligence process. Achieving your financial projections is great while in the M&A process; missing financial projections can halt the process or seriously jeopardize your valuation and require you to renegotiate your sale price or terms.

7. Create a Powerful Presentation
Any prospective buyer is going to look closely at the growth potential of your business and need to first understand the business model, unit economics, sales strategy, management team, products and services and historical financials and projections for the next three years.

8. Create a SWOT Analysis
Define your Strengths, Weaknesses, Opportunities and Threats. Your prospective acquirer will attempt to poke holes in your business, since they will want to get the best price possible. Be prepared to focus on your strengths and opportunities and defend your threats and weaknesses.

9. Increase Your Visibility
Prior to and during your M&A process, you should maximize whatever opportunities are available to increase the visibility of your business. Maximizing visibility might mean attending and speaking at trade shows, writing guest columns on blogs and issuing press releases about strategic hires, new products and company achievements. More importantly, keep the sale of your company 100% confidential and do not discuss it with your employees, clients, vendors and especially your competition.

10. Identify Potential Acquirers
Create a list of all of your potential acquirers. Be sure to include the obvious (similar businesses) and the not so obvious (businesses that would benefit from your services). Treat this as a targeted sales list, as this is extremely important. But first make sure you are a 100% prepared to start the M&A process as you have one chance to make a good impression.

11. Hire an M&A Advisor
An M&A advisor will provide a wealth of expertise and do a lot of the heavy lifting to prepare for and pitch your company to interested buyers. For starters, an M&A advisor will help you prepare a management presentation for your business. They will also help you better understand and present your financials, and prepare all of the information needed to start the M&A process. Once you are ready to go to market, the advisor will prepare and finalize your targeted acquisition list, make calls to all prospective buyers and set up meetings, secure a Letter of Intent (offer), organize and manage the Due Diligence process and coordinate with your corporate/transaction attorney for the legal documents through to closing. Your primary role is to stay focused on your company’s performance during this complex process.

12. Hire a Controller/CFO or Leverage Your M&A Advisor
Being able to set financial goals and effectively articulate your past, current, and future financial performance is critical to a successful M&A process, while maintaining strong financial performance in your company. Have an experienced controller or CFO on staff to assist with financial analysis and management, or utilize your M&A advisor to prepare and present this information on your behalf.

13. Cut the Fat
Prudently look at your expenses and eliminate unnecessary costs and expenses to improve Gross Margins and EBITDA. Every dollar added to EBITDA will be worth many times that amount in value. This may require tough decisions so work with your M&A advisor to make the best decisions to maximize your value.

Selling your company is only one of many ways to achieve a liquidity event. One alternative to M&A includes Private Equity (partial sale by pulling some chips off the table, but continuing to build for a larger buyout). An M&A advisor such as CEO Advisor, Inc. can explain the benefits of weighing your options to best suit your needs.

CEO Advisor, Inc. has 15 years of experience as an M&A Advisor. Mark Hartsell, MBA, President has thirty-eight years of experience, including thirty-five years of experience in mergers and acquisitions.

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.

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