Maximize your Business before Selling
The process of selling a business has become more complex today. Buyers are more cautious and much more rigorous in their due diligence efforts due to the Great Recession. A big reason why a deal fails is that owners do not plan early enough to sell their business. GEM Strategy Management’s experience proves that CEOs and owners should maximize the business value before putting it up for a sale.
Many first time sellers fail to realize that it takes time and careful planning to optimize the business value in order to maximize the sale price. This thus leads to a lower purchase price from a buyer, or worse, no sale at all.
The business landscape changes every three to five years, and your company’s exit plan needs to keep up. Regardless of personal goals, there are some key issues every business owner must address to become transaction-ready, especially after you maximize your business for selling.
The key to increasing business value is to understand how a potential buyer views your business. That is a two-part job.
Obtain an independent, professional valuation from an accredited valuation firm.
Engage an objective business adviser to conduct a business audit and assessment to reveal the strengths and weaknesses of the business.
The advisor can help you pinpoint the value drivers. This will ultimately increase your business’s value and sale price from 10% to 35% or more. If the assessment reveals that some of your business drivers are weak, prioritize them and begin correcting or improving them immediately. Once you understand the current value of the business and the value drivers, you can identify tactics to maximize your business before selling.
Key business value drivers may include:
Sales growth trends
Balanced and growing customer mix
Strength of sales backlog
Strength of the market niche
Strong products and services brand
Highly skilled, efficient and loyal workforce
Solid vendor relationships
Strong management team that can transition to the new owner, up-to-date technology and modern work-flow systems and processes
Robust management information systems, continuous growth in profitability, barriers to competitive entry
Strong company culture and loyal customer base. Company culture and existing customer relationships are two critical areas that concern most buyers. If a business is sold, it is important to ensure that employees will embrace the culture of the buyer. Both these buyer concerns can be mitigated if the seller stays on as an employee or consultant for a reasonable period of time.
Continued owner involvement and the development of a strong management team have become even more important to buyers in today’s M&A environment. As earn-out requirements are commonly integrated into a sale price, performance stipulations tied to profits and revenue are frequently included in the sale contract to obtain the full purchase price.
If you are considering selling your company, act now. You must allow sufficient time to prepare for a transaction to correct any issues and build incremental value. While the market is strong now, strong markets do not last forever. Time is of the essence.
Remember, poor exit planning can erode the value of a lifetime of success.