4 Key Steps to Selling a Business
Building a buyer ready business and then successfully selling it are two of the most important issues you will face as a business owner. Too often both of these facets of business ownership are put off until circumstances force you to make some tough decisions. Usually, at that point—when facing health issues, divorce, or death—you are forced to accept the only offer you have, which is usually not the best offer at all. If you’re in that spot, it is far too late to begin positioning your company to be buyer ready. As we have mentioned before, you need to start doing that from the moment you open the doors to your company.
Recently USA Today published an article that discussed many of the very difficult issues that must be addressed when you sell your company. We found many of their points to be very accurate. Although the companies they used as examples were quite a bit larger than we would define as being “small businesses,” several of the areas they covered apply to any privately held business.
Step One: Deciding to Sell
First, as we have discussed before, the most important step you can take in this process is making the emotional decision to sell. According to Brian Wodar, director of wealth management research with AllianceBernstein Global Management, “The psychological side of selling is often difficult for owners. The business often feels like both their parent and their children. It's like a child because a founder had such a vital role in helping it grow, and it's like a parent because it has provided so much for them."
Over the years, we have found this to be all too true. On countless occasions Generational Equity has seen deals fall apart in the 11th hour because an owner is unable to overcome the emotional hurdle of leaving their legacy to someone else. Frankly, this is why Generational Equity – and most reputable M&A firms that specialize in the middle market – charge an upfront fee.
Before we spend thousands of dollars and countless hours evaluating a company, taking it to market, and negotiating with buyers, we need to make sure that our clients are emotionally ready to sell. Again, as we have pointed out several times, be sure that you are emotionally ready to exit BEFORE you start this process. If not, you could waste countless hours of your time and have a negative impact on your business for years.
Step Two: Documenting Value
Once you have made the emotional decision to sell – and you are sure you can do it – the next vital step is determining what your company is worth and then documenting its historic and future growth potential. A recasting of your financials is a key part of this process. For more information on recasting and accurately valuing your company, please click here. Suffice to say, if you don’t get this step right, you will possibly be leaving millions of dollars on the table when you exit.
One significant part of documenting your business will be proving to buyers that you have a company worth buying. Too often business owners don’t spend enough time on this step, and leave out key information about their intangible assets, items that make your company unique. These are “off balance sheet” items. That is, they don’t show up on your balance sheet because they are impossible to assign a specific value to—each intangible asset will have differing “value” to each individual buyer. As you begin to document your business, be sure to look for facets of your company that truly add value to what you do.
Step Three: The After-Life
Finally, one of the most important issues you will deal with is the question of what you want to do with the rest of your life. Once you sell your company, assuming you aren’t retained to help manage it post-sale, you will need to figure out how to spend the 50-60 free hours you now have per week. We have found this to be one of the toughest transitions entrepreneurs make. For years your entire identity has been tied to your company. The business and you were one. Now you are faced with the question of not only what will I do, but what will define me as a person?
This transition can be very tough on spouses, too. Keep in mind that your spouse has had to make huge adjustments over the past 20-30 years while you were “married” to your business. After selling your business, you are suddenly home every day and this can really affect the relationship. I mean, how many times a week can a person golf?
Experts say that long before you sell your company you should begin to develop hobbies and interests outside of your business. Join a club, pick up a hobby, find a charity that you enjoy, join a church—whatever you decide to get involved in, do it long before you sell and retire. Otherwise, you may find yourself wishing you were back in the grind at work.
Step Now: Building a Buyer Ready Business
But above and beyond all of these issues, the most important step you can take today is beginning to position your company so that it is “buyer ready.” A buyer ready business was founded with the endgame in mind: attract buyers.
Too often we meet business owners who decide to get their company ready for buyers AFTER they decide it is time to sell. That’s way too late. Begin to implement steps today so that your company is buyer ready a year or two from now. For ideas to make your business buyer ready, download our free whitepaper, Building and Exiting A Desirable Business.
Ultimately, the most effective way to sell your company is to obtain the services of an experienced M&A firm because you only get once chance to do it. These professionals can do the heavy lifting for you, allowing you to continue running your company—and your life—while they look for optimal buyers. If you would like to learn more about the proven processes used by Generational Equity to close deals for the most profit, please click here. We would be delighted to meet with you and discuss how to effectively position your company to maximize its exposure to buyers.
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