1. Create a Plan
With very few exceptions, selling a business is a pretty complicated event. Put aside your preconceptions from the last time you sold a house- this is different. All company’s are unique animals and you have to treat them as such when approaching a sale. The time for planning is before you ever get the business on the market or start talking to buyers. Some items to consider:
- How much money do you need from the sale?
- How much time can you dedicate to managing the sale process?
- Who are you going to tell about the impending sale? Key employees? Your accountant? No one?
2. Perform a Business Appraisal
You can’t possibly know if now is the right time to sell if you don’t have an idea of what your company is worth. Even more, you certainly can’t effectively negotiate the purchase price if you don’t know the likely value. Getting a professional appraisal complete – preferably by someone with both valuation and real world experience – puts you in the drivers seat when it comes to knowledge on value. And worse case? If the number doesn’t meet your needs it provides a roadmap to improving value.
3. Prep for the Sale
Selling your car? You get it detailed. Selling a house? Good bet you’d spruce it up. Why should a company be any different? The only difference is the items that get spruced The likely suspects are:
- Clean up the financials. No personal expenses, no funny business, and the fewer “adjustments” the better.
- Literally, clean up. First impressions on touring a messy business: either “I’m not buying this” or “I’m getting a discount”.
- Lock up key employees. No one wants to buy a company where the core “assets” might walk out the door post-closing.
- Solidify Customers. Recurring revenue is often the number one driver of value.
- Demonstrate Growth. Higher growth businesses get higher relative valuations. Period.
4. Hire a Team
So you’ve done some planning and done some sprucing, now it’s time to get in gear. To get the sale done on your terms, carefully consider your advisors. Depending on the size of the deal the team often includes:
- Business Broker (for smaller companies) or M&A Intermediary (for larger deals)
- Transaction Attorney (find one that does a lot of M&A work)
- Financial Planner (for help answering the question “Is this enough?”)
5. Negotiate in Good Faith
Finally, once you have an offer on the table and a buyer in front of you, the surest path to closing is to negotiate in good faith. I can relate countless tales of sellers that sought to carve out every last penny…. only to see their dream deal evaporate. Seriously – ask me. I can tell this story all day long. The lesson learned is that the best deals are the ones where both the buyer and seller expect to give a little bit. Negotiate in good faith and expect – or demand- that your counterpart does as well.
Wrapping It Up
You can’t approach selling a company like it is a house or a car. It’s vastly more complicated, and in most cases vastly more central to your overall wealth. Putting a plan in place, doing the hard work to prepare, and then executing with the right team is the clearest path to a closing.