No matter the business, no matter the industry, all business owners have one consideration in common: an exit plan. Other than turning the business over to a next generation family member, that typically means selling the business.
Why, or when, are you considering selling? Are you planning ahead and thinking about a sale in the future? Do you want to sell now for personal reasons? Are there business or industry issues that have you looking to get out?
Getting ready to sell
One of the first topics I cover when I consult with a business owner looking to sell is the difference between selling to family members or a management team and to an external buyer. But whether you are selling internally or externally, you need, minimally, to take four fundamental steps:
1. Get a realistic market valuation of the business. It is critical to understand what a professional tasked with selling your business externally feels it is worth. Theory and speculation go out the window when you’re talking with a professional who is actually going to present your business to the market. They are going to understand what buyers are currently looking for, recent buy-sell transactions in your industry, and what other businesses in your industry are currently on the market. There are a number of additional considerations when you are actually preparing to present your business to potential buyers; they will want to understand more than the simple valuation calculations.
2. Work with your financial advisor to determine if the selling price you’ve arrived at will net the proceeds necessary for you to meet your ongoing financial goals. Just as we don’t make decisions in a vacuum when investing people’s money, we don’t like making decisions in a vacuum when we’re considering selling what is likely your biggest asset. The knowledge you gain from this process will tell you if you can sell now or if you need to wait and perhaps make modifications to your business to get the value you seek. Sometimes we find an owner could sell their business sooner than they thought. But if the business is not worth what you thought, going through the process of getting a realistic market valuation will help you determine what drives value in your business and what may detract from value, and the risks buyers would perceive and how that would impact the offers you get.
3. Determine what makes your business attractive to the buying market. In other words, what does a potential buyer see, what is the buyer’s perspective, when considering acquiring your business? We are open and honest with sellers, sharing with them not only the opportunities we see, and that we hear from them, but also what might devalue their business. Buyers’ motivations are opposite those of sellers. They want to pay as little as possible and have the terms and conditions of the sale in their favor. So we identify the strengths, problems, opportunities, and risks a buyer might perceive to allow the business owner to make changes that will put them in a better position when buyers do come knocking.
4. Consider how easily your business can be transitioned to new owners. Is the business in an industry that requires owners to be licensed? Are there agreements in place with suppliers or landlords that need to be examined? Are you using specialized software programs or proprietary processes in delivering your goods or services? Do the new owners need to be experienced in your business to succeed, or could they easily pick up where are you are leaving off? We cover not only the transferring of the business but the ability of the owner to transition as well. Some owners want out immediately, in 30 to 60 days, while others are willing to stay for several years and be paid for the value they bring to the new owner.
Considerations moving forward
Once we cover the fundamentals, the seller is usually ready to move forward with the valuation, to get a realistic market value for their business. Then they want to understand how the sale process works and how long it typically takes from beginning to end.
If you are selling externally, we suggest engaging a professional to market the business to potential buyers. We help you understand how investment bankers and business brokers help quarterback the transaction. We discuss how your business will be actively and passively marketed. We cover the typical sale process timeframe to help align your expectations with market realities. And we discuss the fees associated with the services of valuation experts, investment bankers and business brokers.
If you are looking to execute an internal sale, we talk about the various ways you can do so while minimizing your liability and accelerating the transaction payment schedule. Unlike with external sales where you receive most of the purchase price at closing, you may have to wait longer to receive the cash, and you may take on the risk of the business being successful over time when selling to family members or your management team.
There are a multitude of other things that can be discussed with the business owner given that every business is unique. Still, nothing can move forward until the owner understands the value of their business in the eyes of a potential buyer. In our consultations we often end up circling back to this point as the most fundamental step in the selling process.
If you are considering selling your business, we can help. HBK offers a wide range of expertise in exit planning and transitioning your business, including a team of highly experienced and widely respected business valuation experts. For more information, or to schedule a free consultation, call us at 239-482-5522; or email me at email@example.com.
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