Most business owners grossly over estimate the value of their company. This is just one of many reasons companies for sale fail to secure a suitable buyer. Another reason is poor planning. Currently, 80 percent of the owners trying to sell their small to medium sized companies will run into difficulty.
Business owners often consider selling the company as a plan for their exit strategy. This is not always possible, but with some research and planning it is more likely as a path to retirement or something new.
Currently, it’s a buyer’s market, which means there’s a significant amount of competition. In order to successfully sell a company, there are a myriad of items a business owner should consider before putting up that “For Sale” sign.
Keep in mind, it typically takes at least six to eighteen months to prepare a business for sale. If you’ve had a few bad years of revenue loss or your customer base is decreasing, it is not the time to sell. First, you need to think like a buyer. Most buyers want to purchase a company that has a management team with a proven track record, and can continue to grow and expand long after the transaction has closed. The best time to sell is when you have multiple options. These options don’t all have to be acquisition offers, they can also be term sheets, letters of interest or early stage conversations.
Get Your Company in Order
To begin, ask yourself how does cash flow look? Then assess the company’s cash flow after you take yourself out of the equation. For example, business owners run many expenses through the business. If you took those out, how much more profitable would the company be? It is imperative that you leave your salary or a competitive salary in place, as someone else will more than likely be stepping in to take your place. Also consider getting rid of any obsolete inventory. This enables you to take the write- off now so it does not become an issue for the buyer.
Consult with experts
Employ a third party valuation firm to measure the value of your business. It will be worth your time and money to enlist expert advice, unless you have extensive experience in buying and selling businesses. It can also be worthwhile to bring on a management consulting team with a strong business strategy background when you are ready to go to market. The right consultant can help navigate through the challenging issues, including negotiating selling terms, preparing the right set of reports, and they can save you from a lot of headaches.
Sell your company, not yourself
Create long term incentive plans to encourage the management team and key employees to stay with the company. If you delegate responsibilities and build a strong management team, it is less likely the owner will have to stay on as an employee of the company after it is sold. If you will be happier selling and walking away, you want to make sure you are in a position to do so.
If you are thinking of selling, planning is vital. In order to succeed, set realistic expectations for the value of your company and seek the advice of third party experts to help through the process. When negotiations are in the works, give the potential buyer an incentive to purchase the business and if the discussion is not going as you would like, always walk away with your dignity intact; you never know when your paths will cross again.