Because selling a business is the most important financial transaction of an owner’s life, he should think carefully about his exit strategy before it’s time to leave.
The choices are many: He can transfer the enterprise to a family member or sell to a strategic partner and retain some involvement. He can take it public or sell and move on. Most exits follow this path.
To maximize the sales price, owners should begin preparing their company for sale well before the transaction. That requires understanding what buyers look for when acquiring a business and making sure these elements are present.
Management team: Buyers value an experienced, well-rounded management team locked in place with employment contracts. A company that relies too much on the owner will not receive maximum value — especially if the owner is essential to revenue generation. In this case, the buyer will discount the sales price because the business risks losing revenue when the owner leaves. It takes years to recruit, train, integrate and motivate a management team, and this process should begin well before a company is offered for sale.
Products and services: A business needs to establish such a market presence that it’s one of three companies a customer considers when planning a purchase. To minimize risk, a business should be active in more than one market, and new products and services should be under development.
Financial and reporting system: Many purchase and sale negotiations collapse because of the seller’s inability to provide accurate, believable, timely and consistent financial information. If the sale goes through anyway, the offering price will be reduced. At least two or three years before a company is sold, an outside CPA should issue a “review report” on its financial statements; if the business is large, the statements should be audited. A buyer will want to see more than just the basic balance sheet and income statement. She’ll want to know specifics, like how many sales calls it takes for the company to land a customer or how many leads result in a sales call.
Industry: The owner of a company that’s for sale should be active in industry trade associations and aware of what industry leaders are doing. He should be a player and know other players, as one could be a potential buyer.
If the sale is imminent, an owner must speed up the prep, first by working with the company’s attorney to ensure the company’s records — minutes, contracts, leases, patents, trademarks and tax returns — are complete and up to date. He should run the business normally and make no significant purchases or changes in policy. And he’ll want an experienced intermediary and transaction attorney, as a business sale can take between 500 to 700 hours.
ACG Capital Advisors, as a member of the Acuity Capital Network, maintains relationships with strategic and financial buyers, including private equity and venture capital firms. The company hosts educational events to assist business owners with accounting and financial issues, as well as sell-side and capital formation transactions. For more information, contact Marla Gorena at email@example.com.
Download 248_Prepare Early When Planning a Business Sale PDF