Selling smaller and mid-size companies is one of the hardest things in business and requires tremendous expertise and experience. CEO Advisor, Inc. works directly with CEOs to provide business advisory and mergers and acquisitions (M&A) advisory services for small and mid-size companies with a specialty in M&A advisory services.

The sale process involves sellers and their advisors focusing on critical issues to prepare the company for sale, secure the right buyer, negotiate the price and terms, perform the required due diligence, work through the business and legal issues of the legal agreements and complete the transaction. Selling your company takes time so get the preparation and sale process started early on.

Critical Steps to Optimize Your Sale Price

Secure an M&A advisor from the on-set to greatly impact the success of your sale process. The preparation for the sale of your company is paramount, and an experienced M&A advisor will tremendously enhance the value of your business and greatly increase the chance of completing a successful transaction. The most important aspects of preparation require expertise, planning and proper execution in creating a professional Data Room.

Gain the needed expertise early on by assembling your M&A advisory team including a, 1) M&A advisor, 2) Corporate/transaction attorney and 3) a CPA firm or tax attorney. This team will enable you to both increase your business’ value and optimize your sale process.

Below are 12 Critical Issues to Optimize Your Sale Price:

1. Preparation and Data Room - Preparation for the sale of your company includes setting up a professional Data Room with a range of information that a serious buyer would request, review and analyze in order to provide their best offer. This is accomplished by having an experienced M&A advisor to provide hands-on expertise and hands-on work to produce and assemble this information. Proper preparation by experts will add tremendously to optimizing your sale price and increasing the likelihood of a completed transaction.

2. Importance of Metrics - As part of your Data Room, create and update your metrics and key performance indicators (KPIs) for recurring Revenue businesses, such as Customer Churn, Revenue Churn, Growth Rate, Net Revenue Retention Rate, etc. All businesses have key metrics and your M&A advisor will work with you every step of the way to complete them. Deals are made or lost by accurate financial statements and strong KPIs and metrics as they have a major impact on your business’ value to buyers. Your M&A advisor will be key in producing these metrics in a Management Dashboard and presenting your company to potential buyers in the best light.

3. Accurate Financial Statements - Quality accounting and accurate, up-to-date Financial Statements reduce the risks to buyers and will enhance your opportunity to secure an offer at an optimal price. Your M&A advisor should be seasoned and extremely competent in finance and accounting and provide the advice and expertise to address the buyer’s requests. Your CPA firm will play a critical role, as well.

4. Profit Maximization - Sellers can achieve a higher valuation by maximizing Net Profit and EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). An upward trend in Sales and Net Profit is a major value driver. Remain focused on Sales, ensure you have implemented an appropriate price increase to customers, delay new hires prior to a sale, and use attrition to your advantage to reduce expenses when possible in order to maximize Net Profits, EBITDA and increase your value.

5. Defer Write-offs and Delay New Expenses - Sellers should strive to make their Financial Statements for the twelve months leading up to the sale as clear, attractive and profitable as possible. Be strategic about managing your business leading up to a sale, and your M&A advisor will provide the needed advice and guidance. Prudent decisions such as delaying write-offs, delaying certain expenditures and new hires will serve you extremely well in a sales process.

6. Normalize Your Financials – Create Adjusted Financial Statements by removing from your Financial Statements a) One-time costs and expenses, b) Discretionary expenses and c) Acquisition-related expenses in order to increase the value to the buyer. Provide buyers with your Adjusted Financial Statements that optimize your Net Profit and EBITDA and value in a "normalized" state. Your M&A advisor will work with you to create Adjusted Financial Statements.

7. Quality of Earnings Report - Obtaining a trusted third party CPA firm’s expert opinion on your business’ financial performance and accounting practices is both affordable and prudent for sellers in the small and mid-size market and can pay for itself many times over. This does not mean an Audit, rather a simpler, less expensive Quality of Earnings (QoE) report by a CPA firm. Your M&A advisor can provide guidance with this important step, if needed, at the appropriate time.

8. Promote and Divulge All Intellectual Property - Include all intellectual property in the Data Room such as trademarks, patents, domain names and a description of any proprietary software that will provide value to buyers. This is downplayed in too many deals, but it can represent substantial value to buyers.

9. Client Concentration - Buyers discount the value of companies that are overly dependent on a small number of large customers, or one or two very large customers. This is called Client Concentration Risk. No one customer should constitute 25% of your Revenue, and you should have a range of larger, long-term contracted customers in order to present a stable, contracted, recurring Revenue stream.

10. “Key Man” Issues - Over-dependence on one or a few individuals in your company increases the risk to the buyer of the Revenue stability or Operational viability of the company. Your M&A advisor should position you and your management team as solid and attractive to buyers. The need for additions to the management team or cuts in the staff should be taken seriously.

11. Resolve Legal Suits – Make it a priority to resolve any open or pending lawsuits prior to beginning a sale process. The universal rule is “Don’t spook the buyer.” Buyers have a tremendous aversion to lawsuits and related legal costs and will greatly exaggerate the risk of law suits, eventually resulting in a discounted valuation or loss of interest entirely. Benign lawsuits can be managed, but major lawsuits should be resolved.

12. Prevent Trading Down - Once the seller accepts an exclusive, non-binding Letter of Intent (LOI)(exclusive in that the buyer will likely ask for a No-Shop provision for 45 to 90 days), it is the job of your M&A advisor to head off negotiations for reductions in price especially at the end of the Due Diligence period. Head off any opportunity of your buyer trading down on price and terms by preparing and maintaining current KPIs and metrics to present value, attack any weaknesses head-on, and focus on the Due Diligence Process to satisfy your buyer and preserve the price and terms in the LOI.

CEO Advisor, Inc. has tremendous experience and expertise in Mergers and Acquisitions for small and mid-size companies. To address your mergers and acquisitions needs, contact Mark Hartsell, MBA, President of CEO Advisor, Inc. at (949) 629-2520, by mobile phone at (714) 697-3370, by email at MHartsell@CEOAdvisor.com or visit us at www.CEOAdvisor.com for more information.

Do You Have an Exit Strategy for Your Family Owned Business?

For most family and closely-held businesses, planning for succession and an exit strategy is the toughest and most critical challenge they face. 88% of current family business owners believe the same family or families will control their business in five years, but succession statistics tell a different story.
According to The Family Firm Institute:
3% of businesses operate into the fourth generation and beyond.There is a disconnect between the optimistic belief of today's family business owners and the reality of the massive failure of family companies to survive through the generations.
Research indicates that failures can essentially be traced to one factor: Lack of family business succession or exit planning.
Family Business Statistics
The statistics regarding family businesses does not provide optimism regarding their long-term sustainability: It's estimated that 40% of family business owners currently expect to retire, 70% of family businesses would like to pass their business on to the next generation, of which only 30% actually will be successful, and nearly 43% of business owners have no succession plan in place.
Keep in mind, selling the business might be the best option for you AND your family.
When does selling your business make more sense? Like so many things in life, timing is critical. To get the best price and terms, the business should be sold on an upswing, as well as, in a strong economy. Today's stable interest rates are not an impediment as the economy and valuations remain relatively strong – for now, anyway.
Contact Mark Hartsell, MBA, President of CEO Advisor, Inc. for a no cost initial consultation at (949) 629-2520, by mobile phone at (714) 697-3370, by email at MHartsell@CEOAdvisor.com or visit us at www.CEOAdvisor.com for more information.

April 2025 Newsletter

Optimize the Sale Price of Your Company - 12 Critical Issues

Do You Have an Exit Strategy for Your Family Owned Business?

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