If you're planning to sell your business, it's a good idea to "dress" it for success to help attract the best suitors. Just like selling a house, preparations need to be made. As you transition from business builder to owner to seller, we at MGA urge you to ask yourself these questions:
- Why are you thinking about selling?
Is it because you have reached a certain stage or age and want to move on? Do you see industry changes taking place that will impact your business going forward? Is your business at its peak and this is a good time to optimize its value? All of these will impact your decisions when you start a valuation process and entertain offers from potential buyers. They will also impact what buyers hear when you explain what makes your company valuable, unique, and worth buying.
- Are you selling at the right time or the perfect time?
These are not the same. The “right” time might be when you think you can cash out, be free from the burdens of running a business, and finally retire. The “perfect” time, though, might be when your business is on an upswing, your industry is consolidating, and buyers are searching for successful acquisitions.
- What will you do when you’ve sold your great company?
This should also be part of your deep-thinking during this process. You’ll need a plan that enables you to enjoy the rewards of the business you grew and sold.
How do you prepare your company for the sales process? Here are five functional steps to ensure a successful business sale
- Clean up the financial clutter
Potential buyers are most interested in your company’s core competencies. Consider removing nonessential items such as underperforming segments, non-operating assets, shareholder loans, and minority investors from your balance sheet, as these items can complicate a sale or acquisition.
Many sales are based on earnings before interest, taxes, depreciation, and amortization (EBITDA) so do what you can to maximize your bottom line. That includes cutting extraneous expenses and operating as lean as possible. This may mean that you have to shed staff or close under-performing divisions. It might also mean that you have to start explaining why you’re selling the company.
- Emphasize the strengths and opportunities
Many business owners nearing retirement often lose their desire to grow the company. However, potential buyers are interested in the company's future potential. This poses numerous challenges. Do you have an exit strategy while preparing your organization for sale? What will a potential buyer want and how can you prepare your company for it?
Remember, a buyer wants quality. Do you have a strong C-suite, a razor-sharp sales team, a pipeline of research and development projects, well-maintained equipment, and a marketing department that's strategically positioning the company to take advantage of market shifts and opportunities? If not, why not?
- Minimize (or eliminate) risk
It's no surprise that businesses with higher risk tend to sell for lower prices. No company is perfect, but potential buyers will be looking for internal weaknesses and external threats. You should always disclose shortcomings to buyers and then discuss the steps you have taken to mitigate these risks.
It is also important to make sure you are prepared to address the risks before the sale is completed. You probably already know what these threats are, and they may even be why you are selling the company. However, you don’t know the motivations of a buyer. They may want your clients, your position in the market, or your IT capabilities. Ask questions and listen.
- Prepare a Comprehensive Offer Package
At MGA, we work with our clients to compile a comprehensive offer package because we know what buyers are looking for. They want more than just financial statements and tax returns when conducting their due diligence. Depending on the industry, they may ask you for business plans, financial projections, or fixed asset registers. Many will even ask for copies of significant contracts, such as leases, insurance policies, employee non-compete agreements, and loan documents. Before you give out any information to potential buyers, we advise you to enter into a confidentiality agreement (NDA) to protect your proprietary information from leaking to a competitor.
- Hire a Valuator
What is the business worth in the current market? This is an essential question that both buyers and sellers will ask. Business valuation professionals will look beyond the net book value and industry rules of thumb to find the answer. For example, a valuator can access private transaction records that offer details on many comparable business sales. These “comparables” can be filtered and evaluated to develop pricing multiples to value your business. A valuator may also project the organization’s future earnings and then calculate their net present value. These calculations help buyers set asking prices that are based on real market data, rather than gut instinct.
MGA can help you prepare
The best time to prepare for selling is before you are ready to sell. This provides enough lead time to present your company at its best. Consider the future sale as just another part of your strategic planning.
Whether you’re contemplating selling your business or simply want to discuss how to integrate this planning into your ongoing operations, don't hesitate to reach out to your team at MGA. We have consulting professionals ready to discuss your options with you. In today’s hot M&A market, we are here to help you prepare your company for a potential sale before interest rates and the supply of businesses for sale rise, leading to lower prices.
Let us help you prepare your business for a sale today. As always, we’re here to make your complex simple.