When business owners think about selling their company, the decision often revolves around their personal timeline for moving on to a new challenge or retirement. Buyers want to purchase a company in its prime, with several years of solid growth and untapped potential for future growth. Sellers often postpone thoughts of a sale until their own flagging interest or energy becomes apparent in the company’s declining health.
Timing the sale of a company, then requires preparation long before the owner puts the result of their efforts on the market. Good preparation lets you be more flexible in aligning the timing of the sale with favorable external factors and could help you avoid having to sell quickly at a less-than-ideal price. In our experience working with hundreds of company owners, the following process can help ensure that when an opportunity to sell knocks, the owner is ready to answer the door.
Introspection and Emotional Homework: Spend some time thinking about potential scenarios for selling your company.
- What would make me consider selling?
- Would I consider selling partial ownership? How would I feel about sharing ownership?
- What would make me change my mind about selling?
- What does my life look like after the sale?
Getting the Proverbial House in Order: You want potential buyers to see your company as a turn-key package, ready to plug into their existing enterprise or to seamlessly assume operating independently.
Your successor and/or leadership/management team — Do you have the right people in place to run the company during the sale and transition process and keep it profitable under the new ownership? Have you helped them develop the skills they need to run the company without you? “Without an experienced and trusted team at the helm, buyers will either be spooked from the process and walk away, or require that you stay on post-sale to help with the transition,” says Axial CEO Peter Lehrman
Improvements to increase valuation:
- Have your employees documented key processes and procedures or do you have a cultural of “tribal knowledge”? As an added benefit, the process of documenting how your company runs often exposes small but significant changes that can increase value.
- Have you kept systems and equipment up to date? If not, investing in upgrades now could increase your company’s value and impress buyers that things haven’t been left on autopilot.
Buyers not only want to see strong, predictable growth over two to three years. They will want 3 years of financial records for buyers to examine. Those records include
- Income statement
- Balance sheet
- Statement of cash flows
- Tax returns
- Optimal, yes, but also structured correctly to maximize net proceeds to you.
- Objectivity: You may have an idea of what your company is worth. It’s still best to use a professional investment banker and valuation firm.
External factors that could affect valuation:
- Know what they are and which have positive/negative effects
- Monitor market conditions and current valuations at least semi-annually to determine if the winds are favorable to sell.
- Strong brand recognition and reputation among customers, suppliers and resellers.
- Your website will likely be the first impression a buyer has of your company. Make sure it’s user-friendly, current and optimized for search engines.
- Positive employee and customer reviews and feedback
- Check your employee reviews on Glassdoor and seriously consider if you need to make changes
- Check customer reviews on Yelp, Google or other websites related to your industry. Or consider a customer satisfaction survey by an unbiased third party.
- Revenue may increase as you get your house in order. Avoid the temptation when business is at its peak to keep it rather than sell; what you “lose” in cash flow you make up for with higher price.
Relationship Building: You will need an external team you trust, experts who have had time to get to know your company, your key employees and the competitive market in your industry. Start now getting to know who’s out there and determining who you want to work with.
- Personal financial planner or wealth manager
- Investment banker
- Family members who may be interested in purchasing or affected by a sale
- Key employees
External Factor Assessment: This is all the stuff you can’t control. Your personal wealth advisor and investment banker can help you identify and track these factors, keeping an eye out for the most sell-friendly conditions.
- Public market trends
- Comparable publicly traded company valuations
- Recent industry transactions
- Interest rates
- Industry regulatory environment
- Tax law trends
- Government fiscal and monetary policies
Preparing for a sale can take the better part of a year or longer. The more reflecting, learning, planning and building you do before you put your company on the market, the higher your likelihood of getting the best deal and the best personal outcomes. Start building your sell-side transaction team today.
Bridgepoint Investment Banking’s team has more than 186 years of experience encompassing the movement of more than $102 billion in capital across 117 completed debt, equity and merger and acquisition transactions. Contact us for a confidential, no-obligation discussion.