Are you seriously considering selling your business next year? Do you believe valuations have peaked and the recent stock market volatility, commodity prices collapse and rising interest rates will bring an end to the current seven year economic cycle?
My recent email to our many CEOs approximately two weeks prior to the start of the recent stock market pull back stated that business valuations have peaked and this is the time to sell if you are seeking a liquidity event (partially as in a private equity play or a 100% sale).
The bad news is that if you want to sell right away for the maximum value, you should have started the selling process nearly a year ago when valuations were rising and starting to peak. The reality is that it takes time to prepare for and sell a company, especially a smaller company as there are far fewer potential acquirers of a small company of $5 - $10 million in sales than a slightly larger company over $10 million in sales. Other factors are critical in the viability of selling such as size of the market, growth rate, industry niche and expertise, management team, gross profit margins, EBITDA margins, etc., but size does matter.
The good news is that a lot of sales are occurring right now with very inexpensive money available to make those purchases, coupled with a lot of money still on the sidelines looking for solid transactions provided you have a realistic grasp of valuations.
Provided you start the sale process today, you are a couple or several months in preparation, six months to sell the business realistically, and two plus years working with the acquiring company to fulfill your commitment and receive the balance of your money. If the economic cycle ends with a major pull back in valuations and buyers, you may then be ten years away from an economic recovery coupled with the sale of your business and your two year commitment to the buyer. If you can't wait up to ten years for that cycle, then you need to seriously considering selling your business.
Provided you take the time to work with a professional business advisor to actually prepare for the sale of your business, you will undoubtedly jump to the top of the buyer's short list as an easier and more efficient sale process, and you will certainly fetch a higher purchase price.
Here are 3 proven steps to set yourself up to win when selling your company:
1. Get Your Advisory Team in Place
Your team should consist of a professional business advisor with mergers and acquisitions (M&A) experience and expertise, a corporate and transaction attorney and a CPA/tax advisor also with mergers and acquisitions expertise.
A business advisor with deep M&A experience is critical to:
- Developing an exit strategy
- Creating an effective Executive Summary and 3-year Forecast
- Creating a PowerPoint presentation and 30-second pitch
- Identifying a complete list of potential buyers with the proper contact information (100 - 200 buyers in order to attract 5 - 7 interested parties and 2 - 3 letters of intent)
- Updating the capitalization table, organization chart and sales forecast
- Initiating telephone and email contacts with the many prospective buyers multiple times
- Negotiating and formulating letters of intent
- Advising you through the arduous due diligence process and legal documents
- Keeping the sale on track by working with your attorney, tax advisory and buyer, while you continue to run your business effectively and contributing to the sale.
Mark Hartsell, MBA, President of CEO Advisor, Inc. has thirty years of experience in the preparation and sale of small to mid-market companies, including being certified in Mergers & Acquisitions from the Wharton Business School, University of Pennsylvania. Your transaction attorney will focus on preparing and advising you on the legal documents for a stock or asset sale and internal compliance documents, and your CPA/tax advisor will provide upfront advice and estimates on tax issues and navigate the best path for the least tax burden.
Clearly your advisory team is paramount as you should not be sacrificing your business where your expertise lies, and trying to handle the approximately one hundred tasks above if this is not your expertise. Additionally, your business advisor needs to be a negotiator and bad cop, while you remain the good cop and close the transaction as a key (likeable) player in the acquiring business going forward.
2. Start Your Preparation Game Plan
Your business advisor will be the most instrumental in working with you to get your business to optimal value. The length of time this preparation takes depends on your preparedness at the start of this process, but don't waste time trying to do the preparation on your own if this is not your specific skill set or expertise.
Having an understanding of the selling process is key, understanding valuations, what your role will be, having your strategy, accounting reporting, sales reporting, forecasting and other aspects of your business on track and complete are critical. Your business advisor will work with you on all of these areas of your business and more to ensure the optimal opportunity to complete a sale and maximize your valuation.
3. Valuations, Tax Issues and Other Non-starter
Have your business advisor research recent valuations and comparables in the market to make sure everyone is on the same page and expectations are realistic. Of course, your company is unique and has its competitive advantages, but buyers are sophisticated and have a fairly rigid process in how they value and acquire companies so you need to understand the sale process, as well as, realistic valuations and terms in today's market.
No one is going to pay you 100% cash up-front and send you to Tahiti for the rest of the year. Price and terms are critical to every deal and your business advisor will play a key role in negotiating both price and terms throughout the sales process. Tax issues are also critical so discuss a realistic sale price with your tax advisor, explain your corporate structure and whether you are a C corporation, S Corporation or LLC and gain input on the tax burden scenarios as a stock sale vs. an asset sale.
These 3 important steps will ensure that your many years of hard work translate into an optimal opportunity to realize your life's dream and gain the largest payday of your life. Contact Mark Hartsell, MBA, President of CEO Advisor, Inc. for a no cost initial consultation at 949-629-2520, by email at email@example.com or visit www.CEOAdvisor.com for more information.