CEO Advisor Newsletter February 2020
10 Critical Issues When Selling Your Company
At any time a company may contact you to meet the next time they are in your city. They're vague about the reason why, but it's a credible CEO who runs a large company, so you agree to meet. Two weeks later he or she is in your office discussing your thoughts on selling your company. This may be a once in a lifetime opportunity so it pays to be ready at all times.
Here are 10 issues to help you be better prepared to sell your company:
Get a Signed Confidentiality and Non-solicitation Agreement in Place First.All information needs to remain confidential! And you don't want your prospective buyer poaching customers or team members. A well drafted non-disclosure agreement (NDA) with a clear provision for non-solicitation of your staff and customers is a key protection you must have before you engage in early conversations of selling your business.
Have a Team of Advisors Ready.Your M&A advisory team should be made up of a corporate/transaction attorney, CPA/tax advisor and a seasoned M&A advisor that will manage the entire process. CEO Advisor, Inc. acts as an M&A advisor for both buy-side and sell-side transactions and will manage and coordinate the entire sale process. In order to maximize your sale price, run a proactive sale process to multiple prospective buyers.
Maintain Preparedness so You Are Ready for the Opportunity to Sell.Run your company in a manner that promotes preparedness. Preparation by your M&A advisor is critical and will optimize your sale price and your ability to get a transaction completed. "Normalizing" your financials is a key part of this process. The more you have to "explain away" some part of your financials, the more your prospective buyer will start to question their accuracy. Your M&A advisor will help you with all of your preparation.
Not All Buyers are Created Equally.Sometimes the best offer isn't the highest dollar offer. Factor in the certainty that they will in fact close - this is key. This means gauging your prospective buyer's commitment level, capacity to close, and track record with you and with other business dealings. Don't be shy about qualifying your prospective buyers carefully. If you're working with a seasoned M&A advisor or investment banker, this is something they will do for you.
Focus on Running the Business and Let Your Advisors Manage the Sale Process.Selling your business is a strange dynamic. Emotionally, you need to remain focused and calm. Keep running the business through the closing, because if sales decline, and the trend line drops down, it could literally cost you millions of dollars of enterprise value. This is the primary reason why you want a seasoned M&A Advisor like CEO Advisor, Inc. representing you and running the sale process leaving you to focus on running your company to a great degree.
A Transaction is a Marathon Not a Sprint.A sale process takes 6 to 9 months to occur. It can take longer depending on your level of preparation. In summary, you need to accomplish A) Preparation, B) Secure an LOI, C) Complete Due Diligence D) Complete the legal documents and E) Close. This takes a tremendous amount of experience and expertise and a seasoned team of advisors to accomplish.
Minimize Client Concentration Risk with One or Two Very Large Clients.If you have too much concentration in a single customer, a prospective buyer may pause or ding your valuation. By focusing on mid-size and large prospects, many of your customers will tend to be larger thus avoiding client concentration risk to a buyer.
Set up a Confidential Team for the Due Diligence Process.Working with an M&A advisor or investment banker will be critical to get the Due Diligence done. They will set up an online data room that will house the many documents on all aspects of your business. This will require your help with a high level of focus, and may require an additional team member in confidence.
Be Very Disciplined About When You Tell Your Team.Your advisory team will carry the bulk of the load through the sale process, but you may need to solicit help from one or two members of your management team in complete confidence. Most buyers will require employment contracts with incentives to keep your key staff onboard well past the sale date. Only tell your whole company after the deal is closed - this is critical.
It's Normal to Emotionally Detach From the Business as you Go Through the Sale Process.Make sure you correct for that tendency to detach emotionally by keeping your focus on running the business. Again, the sale process is a marathon and not a sprint, and deal fatigue will set in. But stay focused, listen to your advisors and keep your eye on the prize.
These are 10 issues to help you more effectively navigate the sale of your company. Whether the sale occurs in the coming 6 months or 3 years, you're now more prepared with 10 common threads to help persevere the sale process efficiently and effectively.
Contact Mark Hartsell, MBA, President of CEO Advisor, Inc. for a no cost initial consultation at (949) 629-2520, by email at MHartsell@CEOAdvisor.com or visit us at www.CEOAdvisor.com for more information.
Plan Now to Maximize Profits in 2020
The method a company uses to expand its business is largely contingent upon its financial situation, the competition and specific goals of the CEO.
Some common growth strategies in business include Market Penetration, Market Expansion, Product Expansion, Diversification and Acquisition.
Market PenetrationOne growth strategy in business is Market Penetration. A small to mid-size business uses a Market Penetration strategy when it decides to market existing products and services within the same market. The only way to grow using existing products and markets is to increase market share. Market share is the percent of unit and dollar sales a company holds within a certain market vs. all other competitors. This requires a strong sales strategy and effective marketing.
Market ExpansionA Market Expansion growth strategy involves selling current products and services in new markets either in new industries or new geographic markets - or both. There are several reasons why companies consider a Market Expansion strategy. First, the competition may be such that there is little room for growth within the current market. If a business does not find new markets for its products, it cannot grow or increase sales or profits - in fact, profits will decline over time. A business may also use a Market Expansion strategy if it finds new uses for its product and services.
Product ExpansionA business may also expand its product line or add new features to increase its sales and profits. When companies employ a Product Expansion strategy they continue selling within the existing market. A Product Expansion growth strategy often works well when technology starts to change. A business may also be forced to add new products as older ones become obsolete.
DiversificationGrowth strategies in business also include Diversification, where a company will sell new products to new markets. This type of strategy can be risky and companies will need to plan carefully when using a Diversification growth strategy. Market research is essential because a company will need to determine if customers in the new market will potentially like, need and purchase the new products.
AcquisitionThe above strategies focus on organic growth, and most CEOs and business owners focus solely on this strategy. Growth strategies in business can also include Mergers and Acquisitions. With Acquisitions, a company purchases another company, or purchases the assets of a company without taking on the liabilities to expand and grow. A business may also use this type of strategy to expand its product line and enter new markets, as well as, acquire needed talent and deeper management.
An Acquisition growth strategy can be risky, but not as risky as a Diversification strategy. One reason is that the products and market are already established. A company must know exactly what it wants to achieve when using an Acquisition strategy, mainly because of the investment required to implement it.
CEO Advisor, Inc. specializes in advising and implementing growth strategies to grow small and mid-size businesses to the next level. Contact Mark Hartsell, MBA, President of CEO Advisor, Inc. today at (949) 629-2950 or email MHartsell@CEOAdvisor.com for a free initial consultation.