So you’re looking for an exit strategy and the sale of your business seems like the best approach. But how do you get the most for the business you have built? Start right now preparing your company for a sale.
The good news for sellers: It’s a seller’s market. There are not enough assets in the world for the amount of investment banking cash that is sloshing around in the markets, as InterimExecs CEO Robert Jordan said in this recent webinar:
But a successful sale won’t happen overnight. The process takes time. A lot of time. That can be good news, too. It means you have the time you will need to maximize the market value of your company!
Smart small business owners understand that prospective buyers will be looking at everything from the company’s profitability and cash flow to its product lines and succession plan.
But how will you ever manage such a time-consuming process AND keep the business running? Preparing your business for a sale will be like taking on another full-time job.
You’re going to need some help. It’s best if that help comes from people with experience selling other businesses.
Here, we run through the steps for preparing your business for sale and outline the skills you’ll need ahead of time to maximize the company’s value and get the job done.
1. Get your financial house in order.
This means you’ll need to gather all of your financial information, including tax returns, profit and loss statements and other financial statements such as balance sheets. You’ll also need to have an understanding of your business’s cash flow and profitability.
Ideally, you’ll do your own Quality of Earnings report. A potential acquirer will be doing its own analysis; having already done the work will allow you to enter deal negotiations fully armed with a comprehensive understanding of your company’s financials and earnings.
Chances are you’ll need far more expertise than your tried-and-true CPA can provide. You’ll need an experienced financial expert.
That is especially true for entrepreneurs who haven’t had to report to outside investors; a sale or merger requires a whole new level of financial records, reporting, and accountability, starting with the business valuation and continuing right through the deal. Most buyers are either corporations far larger than the acquisition target or professionally run private equity funds. In either case, their needs as business operators can be radically different – far more institutional – than yours.
There’s an easy way to get the expertise you’ll need without bringing an expensive new hire onto your management team: Contract with an interim CFO who is an experienced financial advisor with a history of prepping other businesses for a successful sale.
2. Treat your company as a product.
What are the unique selling points of your company? How can you increase and capitalize on those strengths?
A potential buyer will be doing due diligence. What will he or she find? Are there key employees who should be brought into the sales process? Is your intellectual property properly protected? Do your sales metrics, customer base, and product pipeline impress? Is your technology state of the art? Is your real estate properly valued?
Investors are looking for value based on EBITA and soft and hard assets. Before going to market, do everything you can to better position your company. With investors paying as much as 10 times EBITA, improving your earnings by $1 million can mean a big return on that investment.
You know your company best. If there are areas where you might be vulnerable, look for experts who can come in, quickly assess the situation, and then create and implement a plan to address those vulnerabilities.
Everything you do now has the potential to greatly impact the ultimate sale price of the business.
3. Think about your succession plan.
What do you want to do after the deal closes? An eventual sale can hinge on your decision.
If you are hoping to turn over the keys at closing and ride off into the sunset once the check has cleared, think again. You are a key part of the value of your business. Planning to walk away immediately after the sale could be a deterrent to getting the deal done in the first place.
Instead, think of the sale as a partnership. Your job is to set the company up for success following the deal.
Smart owners take steps to make sure there’s a strong ongoing management team. A new owner is likely to pay a higher price for more stability following the sale, which would lead to more sustained future growth.
4. Create a marketing plan.
This has several parts. You’ll need to prepare a business plan or sales brochure. That document gives an overview of your business, including its history, products or services, target market, and financial performance.
And you’ll need to decide how you’ll identify potential buyers. Options include listing the company with a business broker, advertising in trade publications, networking with potential buyers, and partnering with an investment banker.
5. Close the deal.
Again, this can be all new territory. It’s critical to have the right advice.
Bringing in an experienced interim CEO who has bought and sold other companies can give you the confidence you need to find the right buyer, negotiate the highest purchase price, and oversee details during the merger.
The bottom line: There are people who have done this before and they can help you do it now. A RED Team interim CEO, CFO or CIO has the expertise you need and can be onsite in as little as 48 hours.