Are you seriously considering selling your business next year? Do you believe that business valuations, the stock market, and commodity prices have peaked and rising interest rates will bring an end to the current eight year economic cycle?
The bad news is that if you want to sell right away for the maximum value, you should have started the selling process six months 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 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, management team, gross profit margins, EBITDA margins, etc., but size does matter.
The good news is that a lot of business 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 (in the form of an Earn Out).
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 consider selling your business soon.
Provided you take the time to work with a professional business / mergers and acquisitions advisor to 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 1) a professional business/mergers and acquisitions (M&A) advisor with deep M&A experience and expertise, 2) a corporate/transaction attorney and 3) a CPA/tax advisor also with mergers and acquisitions expertise.
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.
A business/M&A advisor is critical to:
- Developing your 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 - 300 buyers in order to attract 5 - 7 interested parties and 2 - 3 Letters of Intent)
- Updating your Capitalization Table, Organization Chart and Sales Forecast
- Initiating contacts with the many prospective buyers multiple times by telephone and email
- Securing and negotiating Letters of Intent
- Advising you through the arduous Due Diligence process and legal documents
- Keeping the sale on track by working with you, your attorney, tax advisory and buyer, while you continue to run your business effectively and contributing to the sale
Your corporate 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, and your business/M&A advisor will be needed for all the above bullet points and more.
Clearly, your advisory team is paramount as you should not sacrifice running 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 / M&A advisor needs to be a negotiator and bad cop, while you remain the good cop enabling you to close the transaction as a key (likeable) player in the acquiring business going forward.
2. Start Your Preparation Game Plan Early
Your business/M&A advisor will be 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 exit strategy in place, financial reporting, sales reporting, forecasting and other aspects of your business are critical. Your business/M&A 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 to maximize your valuation.
3. Valuations, Tax Issues and Other Critical Issues
Have your business/M&A 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. You need to understand the sale process, as well as, be realistic about valuations and terms in today's market.
No one is going to pay you 100% cash up-front and send you to the beach for the rest of the year. Price and terms are critical to every deal and your business/M&A 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. at (949) 629-2520 to discuss your growth capital options, valuation and exit strategy in a no cost, no obligation meeting at your office. Contact Mark by email at MHartsell@CEOAdvisor.com or visit us at www.CEOAdvisor.com for more information.