Selling your business can be both stressful and exciting. By simply following established best practices, the good news is that you will have a great chance of selling your business to the right buyer for the right price. We have provided some useful tips below for you to follow when you are getting ready to sell your business.
WORTH OF YOUR BUSINESS
Knowing the worth of your business is like any other valuable asset that you may have like a house, or a car. It is crucial to have a rough idea of how much your company is worth before you put it on the market. Research “comps” or comparable sales for your business, focused on the same size and industry.
If you are unsure on performing a business valuation yourself, reach out to a qualified third party, such as a consulting firm, or an investment bank. Obtaining a solid and reliable valuation will give you a good idea on the ballpark number you can obtain for the sale and provide you with a baseline for evaluating offers from potential buyers.
KNOW YOUR MARKET POSITION
Obtaining a valuation is a crucial first step, but it is not a guarantee that you will actually received the quoted amount in reality. The reality is that there are many factors that will affect the final selling price. The macroeconomic business climate, recent deals within your industry, activities and valuations of your competitors, and many other factors. Before moving on to the next stage, it is important to ensure that now is a good time to be selling your business. You may find that you are better off waiting until prospects improve, unless you have a compelling reason to sell in the short term.
ASSEMBLE A GOOD TEAM
If you have decided that now is the right time for you to sell, great! The next step is to assemble a good team of third-party consultants that consist of the following:
- Legal Team – They should specialize in mergers and acquisitions. I highly suggest that you find a team that has done multiple deals and who will not shy away from tough negotiations.
- Accountants/Financial Advisors – They should specialize and advise you on your personal and corporate tax situation.
- Business Brokers/Investment Bankers – They will serve as an intermediary throughout the entire selling process.
ENHANCE THE BUSINESS VALUE
As you prepare for the sale of your business it is tempting to slow down and relax, however this is exactly what you should not be doing. If you allow your business performance to dip before the transaction is completed and documents are signed, this will allow prospective buyers all the excuse they need to lowball you with their offer.
You should be working on enhancing the value of your business before putting it on the market. Examples might include, increasing sales, increasing your profits, lowering expenses, streamlining manufacturing processes or workflows, and expanding your customer base. Again, if you have a compelling reason to sell quickly, all of these things may not be possible but accomplish the ones you can with the resources available to you.
IDENTIFY TARGET BUYERS
You will find that selling your business is likely to be much more successful if you know who your target buyers are. The two types of M&A buyers are generally: Strategic and Financial.
Strategic Buyers – They seek out purchases that will fit into their own long-term business strategies. As an example, a strategic buyer may be looking to expand vertically, possibly to different parts of the supply chain or they may look horizontally meaning new products or industries. You will find that strategic buyers are likely willing to pay more for the business, since they can immediately take advantage of economies of scale.
Financial Buyers – They are treating the purchase as an investment, looking at potential returns they can achieve. Once they have achieved their targeted return on investment, they will most likely look to take it public with an IPO, or look to sell the company themselves. It is typical for financial buyers to use debt to finance the purchase, and they are most interested in seeing a history of solid growth and strong financial statements.
When you’re ready to start preparing for an upcoming sale or another business transaction, click here to connect with a consultant today. At MCDA CCG, we can partner with you to help you achieve your exit goals.