There comes a point in the lifecycle of any business that owners consider strategic alternatives for the future. An option many owners explore is selling the business and its assets to a qualified acquirer. Here are four points to keep in mind before starting the process of being acquired.
First off: What’s your motivation?
When business owners make a decision to sell it can be for different reasons. Some owners are purely looking to exit the business altogether. They want to cash in and move on with no more direct ties to the business. And sometimes owners have no other choice but to sell their business, and/or liquidate their assets and get “whatever they can.” Still, others find themselves in a “grow or die” scenario. This looks like the following:
Owners have brought the business through the early stages of development. They experienced growing pains along the way, yet they are now able to stabilize with a healthy balance sheet, consistent revenue and earnings growth, and minimal customer and employee turnover. While things appear to be stable on all fronts, they recognize that if they do not sell, they will not continue to grow. They will become complacent, and eventually the business will start to deteriorate and lose employees and customers.
4 points to consider
All sellers have their motivations, but here’s what all of them need to keep in mind to move forward intelligently.
Define your goals. What are your goals, and those of your employees, customers, and other key stakeholders? Putting these down on paper and sharing them with a quality advisor in confidence can help ensure you sell to someone who shares similar business philosophies and will take care of what you’ve worked so hard to build.
Do your homework. Find out what your business is worth. A reputable and experienced advisor will offer a business valuation as part of his or her representation and will not charge for this separately. The advisor should have access to a good database of comparable companies and valuation metrics and will be able to pull information together relatively quickly to help you determine a fair value for your business and set reasonable expectations.
Manage expectations. Most of us want to feel that our business is special and therefore should have special attention and treatment. (If the business is well run, it’s fair to feel this way. Again, do your homework with your advisor and have reasonable expectations regarding the process and timing.) That said, while your business has value, there are many companies that could say the same thing. Often industries are highly fragmented, so there is a lot of competition out there and a lot of companies that are also considered “special.”
Be patient. Finally, expect that even if a buyer walks through your door with a term sheet that you are amenable to, there is still an extensive process involved. It can take up to eight weeks and even longer to complete a transaction, and that it assuming the buyer knows what they are doing. (Look for more insights on timing and process next month!)
Whether you’re looking to cash in, or stay on and grow, selling your company involves critical decision-making. A strong advisor can ensure you get the most value from your blood, sweat, and your tears.