December 2023 Newsletter
10 Critical Factors for Successfully Selling Your Business
Securing the proper advice on the sale process, including maximizing your offer price and terms, and getting the deal done are critical. The sale process is comprised of hundreds of small and intricate steps. Your M&A (mergers & acquisitions) advisor should work closely with you and manage the entire sale process.
With over 70 years of combined experience in mergers and acquisitions, CEO Advisor, Inc. provides both buy-side and sell-side M&A services.
Here are 10 critical points if you are considering selling your business in the near future:
1. Business Valuation
Understand what the realistic value of your business is today and the varying ways a deal can get done. Make sure you understand the key components of an offer (non-binding Letter of Intent). Both buyer and seller need to agree on exactly how the offer is made up (cash at closing, asset vs. stock sale, price, terms, seller compensation, earn out, etc.). Your M&A advisor should inform and educate you on valuations, comparables and valuation methods and work to secure the Letter of Intent (LOI) and negotiate the price and terms.
2. Focus on the Value to the Buyer
Potential buyers don't care how much it cost you to develop your products and services, or how much your investors have invested, or how much you need to retire, or how much you think your business is worth. Buyers look at the potential ROI (Return on Investment) in your company based on some reasonable valuation methodology or multiple of sales and/or EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). CEO Advisor, Inc. plays a key role as your M&A advisor to prepare and present value to buyers and optimize your sale.
3. Understand Valuation Methods
The most common valuation method in a sale is an EBITDA multiple for the trailing twelve months. EBITDA multiple is the standard for privately-held companies similar to PE multiples are to a business valuation metric for publicly-traded companies.
There are additional valuation methods such as Revenue multiples for unprofitable companies, discounted cash flows and others, as well. No matter your type of industry, size of your market, rate of growth, uniqueness of product or service, technology or intellectual property, barriers to entry or patents, gross margins, management team and other factors, the industry benchmark for the valuation of your business is a multiple of EBITDA.
Your M&A advisor is responsible for preparing your company for sale, finding and securing a buyer, negotiating the price and terms, completing the Due Diligence process, working with your corporate/transaction attorney and completing the legal documents, and getting the transaction done. These steps are critical and take a lot of time and expertise, and your M&A advisor will work with you hands-on every step of the way.
4. Get to the Offer Stage Quickly
Whether buying or selling a business, a well drafted offer letter in the form of a non-binding Letter of Intent (LOI) is critical. It's in no one's interest to put a huge amount of effort and resources into a business sale before both parties can agree on an offer that represents a good probability of closing. Negotiate the offer in reasonable terms and do not "spook" the buyer with misaligned statements or demands. An M&A advisor is critical in this role of providing information requested by prospective buyers, gaining commitment from buyers and securing a written offer.
5. Create a Win-Win Situation
Buyers have experience in making acquisitions in their space and are very knowledgeable in business valuation metrics. One of the most important roles of a mergers and acquisitions advisor is to devise a transaction value and terms to negotiate the Letter of Intent in a way that works for both parties. As a third-party M&A advisor, CEO Advisor, Inc. advises on alternatives to consider in order to create a win-win situation.
6. Manage Expectations and Be Prepared
Understand the other party's position. This is key in your negotiations with the buyer, achieving a written, signed offer, and successfully getting through the Due Diligence process. Provide an informational Data Room, but do not provide overly detailed information prior to an offer that would typically be information provided after the offer is signed in the Due Diligence phase. When qualifying a buyer, do your research and consider the merits of seeking out additional potential buyers if you determine a buyer has a low probability to close.
In all cases, prepare for the Due Diligence process by organizing and preparing several months prior to selling in order to present value and make a deal work in your favor. Most importantly, have your financials, accounting and customer contracts in impeccable order and prepare a Data Room that will prompt the buyer to provide a strong offer with reasonable terms. Your M&A advisor will advise and assist you in this preparation work.
7. Beware of Due Diligence
The acquiring company may start out with an offer at a strong and respectable valuation, price and terms, but as they go through their Due Diligence process they will find one issue after another that causes them to attempt to renegotiate and reduce their offer. The acquiring company will often throw out the term "material adverse change" in an attempt to justify their value reducing tactics. A seasoned mergers and acquisitions advisor will be able to counter many of these points, minimize these "re-trades" and keep the sale on track. Most corporate business development directors at strategic buyers are paid bonuses on how much below the original offer they can ultimately close the deal. To stem this buyer behavior, it is important to have an expert M&A advisor on your side to negotiate these issues during the sale process.
8. Determine Your Role in the Future
Negotiate your role and compensation after the close fairly early on in the process before you are too deeply vested in time and fees. Far too often acquiring companies will push the seller's compensation off until you are mentally and financially invested and it is too late for you to strike a favorable deal for yourself. You can make a substantial amount of money after the sale, and your involvement in the business for some period of time is critical to make the sale happen.
A key part of the sale process is understanding the other side's hot buttons, and structuring relationships so that both sides have incentives to deliver after the business sale is completed. The seller's compensation is an especially critical step where a M&A advisor can negotiate on your behalf. It will be awkward for you to push this aspect of the deal on your own, and you want to remain on good terms with the buyer by not having excessive or confrontational communications.
9. Hit Your Targets Along the Way
It is extremely important for both sides if the business for sale has a record of hitting, and continues to hit, its targets. Not managing to hit your sales and profit targets at a key point in the sale process is a common reason for business sales floundering or falling out all together. Your business isn't sold until the closing occurs and you never want to create concern or cause your buyer to walk.
10. Keep the Sale Process on Track
The process of selling a business can absorb more time and resources than you realize, resulting in high costs and you being distracted from your business. Your M&A advisor should advise you early on how the selling process should unfold and make sure you are delivering on your side.
The process of selling a business can represent the initial steps in a trust building exercise with your buyer, which helps as you enter into legal agreements and negotiations. Keep on timelines and don't abandon them at any point. Instill deadlines, if needed, and lock in a target closing date as soon as the Due Diligence process is complete. Your M&A advisor will be instrumental in keeping the sale on track to ensure a successful and closed transaction.
CEO Advisor, Inc. provides mergers and acquisitions advisory services to CEOs, presidents and business owners of small and mid-size companies. We address your specific needs with hands-on action, expertise and seasoned advice to meet your M&A goals for an optimal exit.
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.
December Can Be Your Teams Best Month for Sales Prospecting
- For SaaS, digital media, technology and other companies, December can be a great time to focus on sales prospecting. With the holiday season in full swing, it's the perfect time to reach out to potential customers and expand existing customer relationships. With the right strategy, you can use the holidays to your advantage and make December your best sales prospecting month ever!
- Use the holiday season as an opportunity to show your appreciation to your existing customers. Send them holiday greetings and contact them with exclusive offers. Let them know how much you appreciate their business. This could be a great way to strengthen customer loyalty and create more opportunities for sales.
- Finally, take advantage of holiday promotions. You always want to sell from a position of value, but get creative and think of ways you can offer discounts or special deals during the holidays. This could be a great way to entice potential customers and make your offerings even more attractive.
- With a little planning, hustle and creativity, you can make December your best month ever for sales prospecting. Take advantage of the holiday season to make your message stand out and show your customers how much you appreciate them.
- Get started now and you’ll be sure to have a successful December!
- 1) It’s the Perfect Opportunity to Make Progress
- You might be tempted to write this time off, but don’t lose your opportunity to make real progress. You’ll also be setting yourself up for a great January. Schedule and make your calls in the AM each day and focus on “closing” calls to your sales pipeline opportunities.
- Next, set a goal. You could commit to asking three or more trial close and closing questions during every closing call you make. Additionally, make it a goal to ask for a referral on every call – not to have someone get back to you about a referral, but secure a company name live on the call with contact information, and then ask for an email introduction before the day is over.
- 2) The Likelihood You’ll Reach the Decision Maker Is Higher Than Normal
- To connect with decision makers, sales experts suggest calling early in the AM and late in the evening. Executives are hard to access during normal or afternoon business hours. But the logic goes, in the early morning and at 6 p.m. the CEO might be the only one in the office to pick up the phone.
- The same principle applies to the holiday season. While many people are away, those at the top of the ladder may stick around or come in to get some work done while it’s quiet. Keep this in mind the next time you start dialing. You could get sent to voicemail, but there’s also the chance you’ll reach the decision maker and close the sale.
- 3) A Competition With Yourself Will Spur You and Your Team On
- If you thrive on a little competition, try competing with your former self. How much did you and your team sell during this period last year? Challenge yourself to beat that number. Since you’re facing the same seasonal conditions as before, this game is fairer than holding yourself or your team to your results last month or quarter.
- You can involve your team members by having them try to exceed their own previous performance (number of referrals, proposals sent, opportunities added to CRM, number of signed contracts, dollars of signed contracts, etc.). Whoever surpasses their past results by the biggest margin wins a December Sales bonus. Because everyone’s technically competing against themselves rather than each other, you get the excitement of a traditional competition without the potential bad blood.
- 4) You Can Capitalize On “Use It Or Lose It” Budgets
- While some of your prospects have already exhausted their budgets for the year, others will be looking around to spend their remaining budget. Many departments have “use it or lose it” policies: Unspent money disappears rather than rolling over to next year’s budget.
- In addition, companies often review last year’s spend to figure out how much to allocate for the coming year. Suppose a senior manager only uses $600,000 of her $700,000 budget in 2023. She’ll probably get $600,000 in 2024. That manager will probably jump at the chance to spend her remaining $100,000 on a valuable solution while securing her budget for next year. The best way to figure out if your prospect has budget left? Ask. Don’t ask, don’t get!
- You might say, “We’re in December, and I know companies like [prospect’s company] usually have lapsing budgets. What’s your current budget situation?” If your price far exceeds their budget -- and a discount isn’t feasible -- there are two potential workarounds.
- First, you could bill them for a portion of the cost now and the remainder next year. Second, you could investigate how their budget works. Maybe the buyer has a set amount dedicated to certain purchases and a separate amount for other purchases. Instead of charging her one flat price, you might send one contract for your product and another for your service fees. Now that you’ve unbundled or unpackaged your solution, your prospect can fit it into the budget.
- 5. Book Meetings for January
- Getting clients to agree to meetings in December may be tough, but you are in a prime position to book meetings in January. That way you’ll come back to your desk with a calendar full of promising sales meetings in 2024.
- When setting appointments, avoid asking open-ended questions like “When are you free?” instead, be specific and ask “Can you make Monday, January 8th at 11 am or Tuesday, January 9th at 2pm?” It’s a great A – B close that makes prospects more likely to say yes to one of the two options. If you still don’t get a response right away, follow up with an email to lock in that appointment.
- Most importantly, don’t let the holidays interfere with your ability to hit -- or even crush -- your sales forecast. There may be some factors playing against you, but there’s an equal number working in your favor!
- 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.