6 Mindset Issues

First in a Series of (at least) Two Articles

So you’re thinking about selling your business?  Well, here are six considerations with which you will need to come to grips.

• Realistic Expectations
• Business Value
• You’re Too Busy To Sell Your Business
• Potential Buyers
• Curb Appeal
• Get Your House in Order

Realistic Expectations

The value of your company is “in the eyes of the beholder”. That means what a qualified buyer is willing to pay, not what you would like to walk away with from the closing table. Said another way, many closely held business owners start their sales-price thinking based on their perceived retirement plan needs. Please … don’t fall into that trap. It will only result in your frustration and the potential to turn off prospects who have the wherewithal and willingness to buy at a realistic price … one that is market-driven, not your desired life-style in your golden years.

Business Value

The beginning of your sale process is a third-party valuation by a professional valuation expert. This valuation supports the above thoughts about realistic expectations, by creating an objective value or range in value based on evidence of the financial health of the company and its being a viable entity without you, the current owner, on board.

Once the valuation is completed, your asking price will reflect the optimum sale price that the market is likely to bear. By the way, the dollar figure at sale is likely to be more or less than your asking price depending on the buyer. For example, if your company is viewed as a strategic purchase by a competitor or larger company seeking to diversify, you may enjoy a sale price at a premium over and above your asking price … especially if there are competing bids. (More on that in a bit.)

You’re Too Busy To Sell Your Business

You already have a full-time job running the very business you seek to sell. “Stick with the knitting” to maintain/enhance its value. That points to the need for expert advice and execution by a proven advisory and business broker resource.

A competent business advisory/broker resource will help you sell your business today if that is your goal. Moreover, employing its advisory services, a full-service resource will work with you to groom your business for future maximum curb appeal and peak sales value. And at the forefront, a competent resource will not offer a one-size-fits-all formulaic approach … your company is unique and advisory services must be tailored accordingly.

Let’s look at the process of selling your business and the 4-step fulfillment a proven advisory and business broker resource will deliver.

Preparation:

• Choose and monitor a proven expert valuation firm.
• Profile your company’s processes, pricing and customers.
• Target those elements that need attention to enhance the intrinsic value of the company.
• Determine best transition strategy – family/employees/outside buyers.
• Initiate plans for the company to be in peak condition both operationally and profitably.
• Create a listing agreement which describes the company – anonymously, of course.
• Partner with key trusted business advisors as necessary to best serve your needs.

Promotion:

• List the company for sale through a wide-spread local network and national contacts.
• Promote the value proposition of your business to sales network resources.
• Be the initial point of contact for inquiries and screen prospect introductions.

Participation:

• Qualify buyer prospects to interview
• Help to determine best potential buyers
• Coordinate due diligence of qualified buyers
• Manage negotiations
• Assist with closing the sale

Post-sale:

Post-sale advice, guidance and exit-strategy counseling.

If you are not prepared to deliver on the above, employ a business advisory/broker with a proven track record of success.

Potential Buyers

There are two broad categories of business buyers … financial and strategic.  Each has its own evaluation and decision-making criteria in selecting a candidate for purchase.

Financial Buyers are investors/operators interested in the profitability, cash flow and future exit opportunities of buying your business. Their assessments of your business may include the potential to grow cash flow through revenue enhancement and expense reductions. Note: They are much more likely to keep the current personnel in place than strategic buyers.

Strategic Buyers have a long-term business view of how your company may fit into their plans toward diversification, eliminating competition or enhancing its own shortfalls, e.g. technology, marketing or R&D. Strategic buyers are often willing and able to pay more for a company than financial buyers because they may see savings in eliminating duplicate functions or ramp-up costs to capitalize on a new market. Note: Strategic buyers are much less likely to retain all of the current personnel.

Screening, vetting and selecting the right buyer prospects will make all the difference in the outcome of your sale.  Financial buyers may pay closer attention to the current workplace culture, workforce makeup and chain of command. Strategic buyers may exhibit less an emphasis on these in favor of a determination of how to retrofit your existing company into its vision for its immediate and future acquisition value.

Ability and Willingness of How to Pay is a key component in vetting potential buyers. That means availability of cash, stock, notes or other forms of financing … potentially including you as the seller willing to finance some portion of the transaction, e.g. a “down-payment” and periodic payments toward the agreed purchase price … with or without a finance charge.

Curb Appeal

It’s more than just the numbers. Your company must project its image as a marketable package. If you haven’t done so recently, go through a quick visual inventory of what your business looks like inside and out. Anything other than what you’d be proud to present to houseguests at your home needs immediate remedial attention.

How are you and your staff dressed … uniform shirts with company logos, professional business casual? Project an appearance that says to a potential buyer, “They take pride in this company, so it must be a good one.”  While there’s more to curb appeal than just physical appearance, it’s a good place to start!

Get Your House in Order

To maximize price, prior to the sale, the business must have its “act together.”  In large measure that means:

• Your business is not dependent upon you being present. Perception: The more valuable you are to the business, the less valuable the business is to the buyer … and financial proceeds to you, the seller.
• Books and records must be accurate, verifiable and up-to-date.
• Human resources records verifying compliance are essential.
• Profitability is generally crucial. Most potential buyers seek a company with sustainable financial health that will deliver a return on their investment (ROI).
• Written policies and procedures should be in place – legal, regulatory compliant and up-to-date.
• Systems should be employed that maximize the efficiency and effectiveness of the company.

 

So … your how-to list to prepare and execute sale of your company … recognize the following:

• Realistic Expectations
• Business Value
• You’re Too Busy To Sell Your Business
• Potential Buyers
• Curb Appeal
• Get Your House in Order

Stay tuned for our next issue and profit from a Checklist for Success – a simple planning tool to better ensure your financial victory in the sale of your business.

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