There comes a time in any privately owned business owner’s life when you start to think about what is involved in selling your business.
In this article we will discuss how to sell your business, with the goal of selling your business at the best price. Below are a few thoughts on how to sell your business.
The Reason for Selling your Business.
There are many, often personal reasons that cause business owners to consider selling their business.
1. Retirement — like many other baby boomers, you have reached the horizon of your business career and would like to step away to enjoy the fruits of your demanding work.
2. Partnership disputes- are causing to undermine the fun you once shared in collaborating with another to grow the business.
3. Illness — of partners, family members or your own illness is taking up increasingly of your time and attention.
4. Competition — well capitalized rivals and competitors are disrupting a once predictable market for your business.
5. Markets -The business is facing sustained erosion of market position, margin, and bottom-line profits.
6. Risk — the reinvestment of your personal financial resources in technology, additional infrastructure, and expensive talent for the business to remain relevant exceeds your personal financial risk profile.
7. Enthusiasm — the reasons you founded and grew the business to its success for decades no longer seem as important to you.
8. Heirs — your children have no interest to transition into your role in the family business and are pursuing their own successful careers.
9. Management — your management team do not have the financial resources to succeed in buying the business.
10. Accident — In some cases, owners or their family are forced to sell the business when it is too late, the business lost the founder.
11. Timing — If you held on past the companies prime you might be too late, and it will be hard for you to sell your business as a going concern and an orderly liquidation might be the last course of action.
Timing of your Business Sale
You cannot sell your business within weeks or month, sometimes it takes many months and years to position and prepare for a sale at a great price. If you are thinking of selling your business, then we would recommend you start learning as much as possible about the subject early and well in advance of how to best position your business for an eventual sale.
The reasons for this are to ensure you have enough time to best position the qualitative attributes of your business.
Furthermore it’s not unusual in situations where your business is sold at the top end of the range that that buyers will want to pay you more than the cash at closing, paying you additional sums via 1.) an earnout based on future performance of the business 2.) vendor financing, where you lend a percentage of the total price as a loan to the buyer 3.) you roll a minority percentage of your exiting ownership into the go forward business 4.) you remain actively employed as an officer and or board member along with the new owner managers of your former business.
All the above leading to an eventual exit at the highest price. These elements to a sale require several years for you to have fully transitioned out of your former role as sole owner and operator of your business.
To gain the best amount for your business these attributes are ideal.
— Increasing profit margins year over year.
— Consistent improvements in year over year sales growth.
— A loyal reoccurring customer audience.
consistent improvements in the financial efficiencies or ratios that measure your business performance.
Before embarking on a journey to sell your business it’s important to understand what your business might be worth today and for you and your family to have a realistic price range and expectation of its value.
An independent third-party valuation will present you a few different perspectives as to how your business will be valued by potential strategic, financial, and other types of buyers This business valuation process performed by Mergers and Acquisition advisors aligns your expectations with market realities and identities areas for immediate attention that could improve a buyer's subsequent expression of interest in acquiring your business.
Should You Engage Expert Advisors?
This is one of the most frequent questions when owners are selling their business, in addition to accounting, tax and legal, mergers and acquisition advisors who specialize in selling companies of your type, size and market area are always a good decision.
Mergers and acquisition advisors already know of potential foreign, financial, strategic, family offices, high net worth individuals who are looking for specific companies to buy and know how to create demand for a business like yours with a global audience of potential buyers.
What appear to you as a very opaque and static local business environment with few potential buyers changes dramatically when experts in mergers and acquisition are brought in to help you.
Each of these experts brings their unique set of skills, experience, network of contacts and proven processes to your project so that your initial investment in establishing a team of experts to represent your interest will be rewarded and returned to you multifold when your business is sold at its top price and any fees incurred along the way for the various experts are but a small amount of transaction fees when compared to your ultimate selling price.
The most important part of selling any kind of business is to be prepared well in advance to share all manner of confidential but important documents, contracts, financial statements, and information with interested buyers of your business. Your expert advisors will help you in gathering, reviewing, and preparing this information.
While your mergers & acquisitions advisor will develop a teaser and confidential information memorandum about your business to convey the opportunity of buying your business and what the purchase of your business might look like to a new ownership group.
Furthermore, your mergers & acquisitions advisors in tandem with your legal advisors will prepare and draft confidentiality agreements to be used and negotiated before any potential buyer gains access to the confidential information memorandum and data room.
Here are the steps that every third-party professionally led sell side process follows:
Here are the twelve steps that every third-party professionally led sell side process follows:
1. Compile a target list. Your mergers & acquisitions advisors as explained early should have a network already establish of potential buyers.
2. Contact the targets. Your mergers & acquisitions advisors as explained earlier, will have established relationships, and will reach out to a network of potential buyers.
3. Send the teaser. Your mergers & acquisitions advisors having prequalified the investment criteria of selected buyers shares an executive overview of the opportunity on a no names basis with several pre-qualified potential buyers.
4. Sign a confidentiality agreement. Interested and prequalified parties negotiate with your mergers & acquisitions advisors and legal advisors a confidentiality agreement to gain access to information while agreeing to protect the value you have created in your business.
5. Send the confidential information memorandum. The mergers & acquisitions advisers share the confidential information memorandum with each selected party once the confidentiality agreement has been negotiated and executed.
6. Solicit an indication of interest. Interested buyers return after a reasonable period with a non-binding letter indicating their ongoing interest in buying your company.
7. Conduct management meetings. Potential buyers and you as the seller meet in a two-way exchange of confidential where you as the seller learn more about the buyer, their interest and intentions should they be successful in purchasing your business, while you as the seller present your pitch as to why your business would be a great acquisition for the potential buyer.
8. Ask for a letter of intent. Serious buyers return with a binding letter indication their ongoing interest in buying your company for a price, terms, and closing date for the sale of your company.
9. Conduct due diligence. The buyer and their acquisition team of legal, accounting, commercial advisors, investors, and lenders conduct their due diligence.
10. Write the purchase agreement. The purchase and sales documents are prepared by all parties.
11. Close the deal. Closing is anticlimactic: both parties sign lots of papers, buyer gives seller the money, and seller gives buyer the company.
12. Handle any post-closing adjustments and integration. Buyer and seller usually have some post-closing financial adjustments, and buyer sometimes must integrate the acquired company into the parent company or make sure it can continue to operate as a standalone company.
Selling a business for most owners is an event that happens only once in their career, it therefore important to make sure that you are selling your business at the best possible price. Towards that goal be sure to learn and understand all the information in this article.
Furthermore, feel free to reach out directly to the author to learn more about the many nuances that this article is simply too short to convey and that might make or break the successful profitable sale of your business to a new owner.
Karl Sigerist is a Managing Director at The Shaughnessy Group — The Shaughnessy Group is a lower middle-market corporate finance advisory firm. With our collective experience, access to industry data and resources we can confidentially examine a company to provide a realistic value range. Request your free report.
Karl Sigerist | Managing Director