Early planning will help generate a productive business sale


The pandemic.

Hiring issues.

Supply chain troubles.

Historically high valuations.

These are some of the top reasons many business owners consider selling their business.

For many, however, selling 100% of the business may not align with your goals or objectives. Fortunately, many alternatives are available today for business owners looking for cash flow, but not necessarily a full exit. Many companies are finding attractive capital solutions that allow them to take chips off the table while retaining a majority or minority stake. By doing so, the owner gets financial security and an option for a second monetization event within the next three to five years.

If you’ve determined that a sell is the right path for you, be sure to assess the key value fundamentals that can influence price and process. Although no one has a crystal ball, short-term macroeconomic fundamentals generally don’t change overnight (barring some other global event). these problems.

• Does the company have in-depth management or is it entirely dependent on one person? Quite often the founder or a key management employee is critical to the business, and the business can fail without them. If you can’t go on vacation or if all of your key customers only want to do business with you, that’s usually a sign that you need more depth in your management team. You need to begin a transition that includes multi-level leadership development before you begin the sales process.

• Financial records must be clean and credible. Financial statements should be prepared in accordance with GAAP (generally accepted accounting principles) with good supporting documentation, explanations and records. Missing or incorrect accounting entries will cause delays and can kill a sales process as it raises unnecessary questions. Don’t worry about these unique items and perks – these will be adjusted, just keep good documentation.

• Legal obligations should be removed. Contingent liabilities, unclear contractual commitments, and environmental risks are some examples of potential legal obstacles that can impact value and stall or terminate a transaction. Your transactions attorney will have a long checklist of due diligence items, but the seller is responsible for ensuring that no financial or legal skeletons are found in the closet when a buyer starts opening doors. Ask your advisors to help you do your own due diligence so you can answer them and a potential buyer doesn’t find them.

• Customer diversification is another key driver of value. Imagine being a supplier to a major car manufacturer. Any fluctuation in sales will affect your business and a change of direction at your client could wipe out your business. Buyers will be reluctant to pay top dollar for a business whose success depends on a few key customers, even if they have a long history with the business. Companies with diverse customers, suppliers, and end markets generally receive higher ratings.

• Cybersecurity has moved to the forefront of sales processes and must be addressed before going to market. A key topic that has become a priority with the increase in cyberattacks concerns technological security. Has the company invested in technology to develop a secure operating system and business continuity plan? Expertise can be internal or outsourced but must be credible and proven.

• Finally, a business must have a strategic plan that shows how the business can generate sustainable revenue and EBITDA growth over the next three to five years. Buyers need a return on investment and will therefore pay more for a business with a defensible growth plan than for one that has limited growth potential. Proof that the business can generate sustainable revenue with good margins is a key component of perceived value.

The best advice I can give is that business owners need to determine their goals and priorities (financial, family, employees, legacy, etc.) and start planning as early as possible to lay the groundwork for a sale or of a successful recapitalization. It’s never too early to start planning and discussing your options.

At the beginning of this process, get help from those who have been there before and have done it. Selling a business is a once-in-a-lifetime experience for most. Find an investment banking partner who will help you evaluate strategic alternatives and lead the transaction process with an M&A lawyer, not a corporate general counsel. If you don’t know where to find these resources, ask for referrals from your trusted advisor (lawyer, banker, accountant, financial advisor). Look for a company with a solid track record that has completed a wide variety of transactions and will put your best interests first. Industry-specific expertise used to be essential to knowing buyers, but in the age of technology and social media, this is much less critical than finding an advisor you can trust and has experience with. experience in succeeding in a range of industries, transaction types and business dynamics.

Jon Doehr is Managing Director at Cascade Partners. Contact him at [email protected]

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