Selling a business can be daunting, so it’s important to understand the most important elements of the sales process. The more confidence potential buyers have in your business, the greater the value. The less confidence they have, the less value they will see.
To maximize your business’s value upon your exit, you want to make sure you’re fully prepared to answer the following questions succinctly, truthfully, and with total transparency:
Human Capital (“Your People”): Is my management team ready to step in and fill my shoes?
Have you developed a strong management team, from an operations perspective, financial perspective, and most importantly, a sales perspective? Buyers want to know who owns the customer relationships. It’s a key factor. If you own the relationships with the customers, the buyers may feel that you need to remain with the business post-closing for a specific period. In other words, they’re not going to want to pay you for the company and then let you walk away. But, if you have a strong sales team, and established systems that back up the sales team, buyers will have a higher level of comfort for you to transition out, knowing the business will continue to grow under new leadership.
Sharing Your Sales Numbers: What is the value?
If your business is doing well and the numbers are rising with year over year growth, that’s certainly a strong motivating factor for buyers to pursue your business. But the devil is in the details. How do you get those numbers? Who’s driving those numbers? How do you track those numbers? What kind of profit are you making per product line? What kind of gross margins are you making by different divisions, sales mixes, etc. If you can’t demonstrate to potential buyers what your highest profit margin products are, they will question what the future holds.
Those questions widen the skepticism gap, which can affect your business’ value. If you have a good sales team and sales systems in place, strong administration, and can produce historical data including pipeline reports, backlog reports and forecasting tools, you can overcome that skepticism. The data will offer great value.
Retaining Key Personnel: Can you incentivize key players to stay on?
The management team and the key people are essential to selling a company. Buyers are not going to close the transaction until they lock down the management team. That’s why you’ll need to identify who will stay, who will go, and how you are planning to incentivize your key players to stay on board post-closing. For example, Osage has a client that paid his general manager, head of sales, and controller, the same amount of money post-closing to stay on for at least a year. Most business owners we talk to are not only willing to, but want to, share in some of the success with these key people.
As part of this question, it’s important to consider who holds key relationships with your customers. If a key player is planning to leave upon sale, the buyer could bid down the business or walk away after placing a bid. For example, say you have an owner, who is the head of sales and has been driving his sales since day one. If he’s considering leaving, that’s going to pose a challenge to getting the deal done.
Are your financials in order?
Your accountant, attorney, and wealth manager should all be notified as you begin the process of contemplating a sale of your company. In order to investigate proven value, a buyer will want to look at financial statements, internal and external audit records, and tax returns. If you have an audited statement from a strong regional local firm or national firm, that’s a big advantage. If financial records are compiled with full disclosure notes from a good reputable firm – local, regional, or national – that’s great. But if you only have internal QuickBooks accounts, buyers may be skeptical.
Buyers are going to take a deep dive during due diligence into your financials. Everything must be recorded, even if they are internal numbers. You may need to bring on a controller, or possibly a part-time CFO to help you get ready to go to market. The last thing you want is to have an accounting error show up during due diligence. The skepticism could make it a deal breaker. Before you go to market, have an accounting firm or internal resource conduct a stress test to your financial statements. It’s critical.
Capital Improvements: How do all the extras add up?
Necessary capital improvements may be reflected in the purchase price. More often today, a key consideration is your technology infrastructure: hat systems do you have in place, when’s the last time you upgraded them, and do you have established systems to prevent cyber-attacks? Having good, strong, upgraded systems in place is critical. We recommend you run your business like you’re NOT going to sell it. A continued investment in new equipment and systems will add value to the sales price; these purchases can always be included in the sales negotiation process.
When do I begin the thought process around selling my company?
We get asked this question a lot. It’s an emotional sale, for all our clients. We take our time to build trust with our clients. Most often, we have initial discussions up to two years or more prior to sale. The more prepared you are for the sale, the higher the valuation you will get for your company. Osage is often working 24/7 with our clients to fully understand their goals and objectives so they are completely prepared when they’re ready to sell.