According to this survey, 44% of business owners plan to sell their business at some point, whether that’s now or later. Some reasons include, the wish to retire, a lack of family successor or an obvious threat when aiming to sell businesses, concerns about the future. Interestingly, 25% of business owners share this concern!
Would you buy a business that is not sustainable? Do you believe you can achieve an interesting sale price when you doubt the business will be relevant tomorrow? Perform this check before you kick-off the sales process to ensure you are well positioned to achieve the best result.
Ensuring the best results
You may be getting closer to retirement age, feel exhausted, face health issues or just be curious to do something completely different. Whatever YOUR exit reason may be, after putting your blood, sweat and tears into your business for decades, you deserve the best possible result. This includes minimal disruption during the sale process, securing your business’ existence after your departure and, of course, not selling it under value.
Prepare to be ready for sale
In previous articles, I have outlined the importance of why business owners who are looking to sell their business should start preparing NOW, and what it means to be ready for sale. But how do you know when you are ready to go to market?
Establishing the right mindset
When I talk to business owners, one of my first questions is the WHY, why do you want to sell your business? Most of the time, the answer is along the lines of ‘I’ve had enough, I’m over it’, ‘It’s too hard, I’m exhausted’ or ‘I’ve been doing it for too long and now want to do other things’.
The wish to travel for longer periods, a personal health issue or the death of a friend or family member also often trigger the wish to sell the business. Whatever your reason is, having the right mindset, staying positive and framing your expectations about offer, timing and pricing is crucial to getting you the best deal.
‘I have been really successful for so long and see so many opportunities for the future, but just feel the business needs another set of talents to take it to the next level’ sounds much better than ‘I had enough and just want to get out of it ASAP’, doesn’t it?
Compiling meaningful due diligence documentation
In my experience of more than 20 years of buying and preparing businesses for sale, I have learnt that the more information you provide during a due diligence, the better chance you have of getting the best deal. It’s about being transparent and not keeping anything hidden. You can learn more about being transparent in my other blog.
When buying a business, I never fail to check three main areas, and ensure the information in these areas is complete, accurate and conclusive:
- Financials– to assess accuracy of assets and liabilities
- Legal– to identify potential risk and exposure
- Commercial – to determine the strategic and commercial value
So, the more comprehensive the information, the higher the chance of closing the deal and achieving a higher value.
Developing a comprehensive post-acquisition business case
When buying businesses, an important question of course is the status quo, what do I get and how much does it cost?
However, the even more important question any acquirer will raise is future-orientated, what do I need to do to at least maintain the current success, and what can be done to lift the business to the next level? Ultimately, the answer to this question will determine the price an acquirer is willing to pay, as it sets the acquirer’s expected return on investment. Thus, the better you can explain how long (or short) it will take to compensate the investment paid to yourself, the better your position will be during the sale negotiation.
A comprehensive post-acquisition scenario will support you getting the best deal. Develop a business case to the acquirer, showing how his/her investment could be paid back over a short period of time and how the business could be taken to the next level.
Are you ready for sale - your personal safety check
Ever taken a cruise? They all make you go through the safety briefing in case the boat sinks. They don’t wait until the ship is on fire to start telling you about the lifeboats. Do the same with your business today and check the following three areas:
1. Mindset – Prepare yourself and frame expectations
Reason - Why do you want to sell the business? Why now?
Inclusions - What exactly is up for sale? The whole business or just some assets?
Pricing - What is an acceptable price range?
Timing – By when do you want/need to sell?
Commitment – What kind of support (if any) are you willing to provide post acquisition?
2. Documentation – Information to be provided during due diligence
Financial – All financial data for at least past 3 years and next 2 years
Legal – Business, HR, Compliance, Contracts
Commercial – Business overview and positioning
3. ROI for the acquirer – Comprehensive post-acquisition scenario
What needs to be done to sustain current business success?
What can be done to grow the business and increase profitability?
How long does it take for the acquirer to compensate the investment?
Whatever your preferred exit process is - directly talking to potential acquirers, advertising your business publicly or engaging with an agent - ticking all the boxes before you plan to sell your business will not only increase the chance of closing the deal successfully, it will also maximise the value of your business.
Time better spent – Connect with Arvind
Preparing your business for sale and increasing its value at the same time is part of ‘future-proofing’ your business and having it ready for seizing YOUR next opportunity, whether it is an exciting acquisition, planned succession or a lucrative sale.
If you as a business owner feel you need help getting ready for sale, please get in touch. I also invite you to visit my website. For information straight to your inbox, please subscribe to my newsletter here.
Tomorrow you will wish you had started today!