CEO Advisor Newsletter November 2020
Is It Too Late To Sell Your Business?
These businesses may be suffering from owner lack of focus, lack of innovation, lack of sales and sales management, cash flow problems, or even heading to an imminent bankruptcy. Many business owners contact an M&A advisor hoping a sale will solve their problems. These businesses are often categorized as distressed, turn-around or pre-liquidation opportunities (also known as a “falling knife.”)
Sellers should not expect to receive a premium on a distressed business. Some businesses at this point are simply not sellable until a substantial turn-around is accomplished and growth returns. While an M&A advisor may be able to find a buyer willing to pay higher than liquidation value, it can be difficult to close a deal. Timing is critical to avoid negotiating from a weak position. Because CEO Advisor, Inc. provides both business advisory and M&A advisory services, we can work with the CEO to turnaround a declining business in preparation for the ultimate sale of the company.
It is rare when a buyer has the confidence, vision and capital to take on a distressed business. It's already difficult to find the right buyer for a profitable business, and negative growth or losses diminish the pool of possible buyers much further.
Once an experienced buyer realizes that the business is distressed, the buyer will tend to either make a low-ball offer or wait out the failure of the business and try to buy the assets through bankruptcy proceedings.
Why do CEOs and business owners wait too long to sell their businesses?
They Miss Time the Market. Hindsight is 20/20 and few owners want to sell when their business is flying high, but that is the optimal time to sell and receive the maximum value of the business. The Business Owner Doesn’t Have an Exit Strategy. Creating an exit strategy, retirement or a life change can be difficult. Many CEOs and business owners put off planning their exit strategy and eventual transition until the business is underperforming or failing. Contact an M&A advisor like CEO Advisor, Inc. to discuss your options for an optimal and seamless exit strategy. Many business owners feel that selling is “Giving Up” on their business. They believe they just need to refocus to fix the business, but many owners are too burnt out or tired to effectively turn the business around. Once they realize it they may have wasted many months or even years! Seek help from a business advisor to assist you with revitalizing your business.Risk in Time. Many CEOs and business owners completely discount extremely risky issues that can occur over time such as: A) Recession, B) Declining business performance, C) Elections, D) Competition, and E) Act of God (Yes, a Global Pandemic!). Business Valuation. Many CEOs and business owners are surprised when they have their businesses valued or appraised. It’s common for a business owner to internally overvalue their business, often driven by the emotional value of years of hard work. A realistic market appraisal combined with the tax implications are critical, and an M&A advisor can be extremely helpful in providing you with needed information.
Businesses grow in stages. Most business 1) Launch, 2) Grow, 3) Mature and then begin a slow 4) Decline which requires an upgraded management team, reinvention, capital investments and improvements or new operational efficiencies. Many sellers wait until the 4th stage - Decline - before considering selling. Unfortunately, this is the stage when it’s both difficult to sell and the business will be valued at a considerable discount.
When is it too late to sell your business? Selling a business can take six to twelve months or more to prepare, market, generate an LOI, perform Due Diligence, and complete the legal agreements. All things being equal, you will be better off selling your business well before it peaks. Your M&A advisor, such as CEO Advisor, Inc., will coordinate and drive the entire process working closely with you during the entire process.
In summary, planning your exit strategy should begin now. Your advisory team should include a corporate/transaction attorney, a CPA/tax advisor and an M&A advisor to review your exit strategy options, determine the value of your business and the tax implications of the sale.
CEO Advisor, Inc. has the expertise and experience to guide you through this exciting process to sell your business. Contact Mark Hartsell, MBA, President of CEO Advisor, Inc., for a free initial business consultation at (949) 629-2520, by mobile phone at (714) 697-3370, by email at MHartsell@CEOAdvisor.com or visit us today at www.CEOAdvisor.com for more information.