As you grind through the daily challenges of running and growing your business, the future sale of that business might be the last thing you’re thinking about - especially if your company is still growing. A successful exit, however, can almost be assured with proper preparation. Owners who prepare now not only enjoy a healthier business while they own it, they get the added benefit of reaping the rewards of a lucrative sale down the road. Early preparation also minimizes risk for the buyer.
Owners who understand that only about 23 percent of businesses listed for sale actually sell should want to do everything possible to change those odds. With a wave of baby boomer-owned businesses expected to hit the market over the next decade, business owners looking to sell need every advantage they can generate to attract a buyer at all. Below we’ve listed a few practices you can incorporate now to make your business sellable when the time comes.
- Know your numbers. Buyers undertake an exhaustive due diligence process, looking back at least three years to assess growth and prior financial history. So get your numbers under control now. Your chart of accounts and balance sheet must be accurate and transparent, demonstrating trends both negative and positive. This will lead to questions about how you address important issues and sustain healthy trends.
- Disclose it all. The buyer of your business will be trusting (and verifying) everything about the business as well as everything you say. There is no “perfect business”; they all have shortcomings and weaknesses. The key is to disclose everything - including the difficult stuff - early and strategically so that the buyer doesn’t walk away. Most buyers are appreciative when the person who knows the business best (you) is honest about “opportunities for improvement” and offers any suggestions regarding courses of action to remedy issues.
- Choose the right buyer. The right buyer is the one who sees true value in your company. Strategic buyers want to see a trend of profit growth, as well as brand recognition and a strong market share. Financial buyers want growing revenues, strong management, and free cash flows. Internal buyers want strong financials, a solid balance sheet, diverse products, and a sound corporate culture. Know your buyer so you can position the business to be most attractive to the best fitting successor.
- Drive value. Create a list of factors that will make your company more enticing. Then consult with an experienced M&A advisor to learn the 8 key drivers of transferable value. Together, you should be able to position the business to be most attractive to several types of buyer.
- Know your true walk-away number. All sellers have their “fake” walk-away number, which is the figure over which they say they’ll leave the table. Then there’s the real walk-away number. What is yours? How did you arrive at this figure? Talk with your advisory team about this number and whether it’s realistic or fair in light of current market circumstances.
- Don’t neglect your business. Selling a company can take your attention away from daily operations for 7-9 months, especially if the business is heavily dependent on you. A skilled team of deal professionals, including an M&A advisor, CPA, and M&A attorney can run the sale process while you focus on running the business.
- Plan for the future. After a lifetime spent running a business, it’s tough to decide what comes next. You need to take time to critically assess how selling this business may change your life. Are you truly ready to retire? Do you want to run a new business? Travel? Spend time with your family? Being emotionally ready to sell your business can help you sell the company more quickly and at a greater profit.
About GaP Business Advisors
Gilbert & Pardue Business Advisors (GaP) is a Houston-based business advisory firm serving lower middle and middle market owners from coast to coast through representation for Mergers & Acquisitions (M&A) and through business value-growth services such as Fractional CFO, Advisory Board, Executive Coaching, and Consulting.
Matt Gilbert and Bret Pardue established GaP to provide owners of lower middle and middle market businesses – those businesses generally enjoying annual revenue of $5-$50 million – with the quality of M&A representation and value-enhancement services previously only available to middle, upper middle, and large businesses. GaP brings highly-experienced executives, sophisticated financial and marketing products, proven-effective processes, and fully-integrated expertise to every engagement. No other M&A firm serving the lower middle and middle market provides the quality of representation and transactional expertise that we do.
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