The Top 10 Strategies to Sell Your Business for Maximum Value
During my career as a corporate executive and investment banker I have worked on numerous acquisitions and looked at hundreds of businesses. It is obvious when an owner has truly prepared the business for sale. Past performance alone will not maximize value. Therefore, an owner must get the right advice and develop a plan to attract the right buyers and get the highest possible price. Selling a business is the biggest economic event in an owner’s career. Do not leave your success to chance. These are some of the top strategies to sell your business for maximum value.
1. Work with Someone that Will Distinguish Your Business from Others
Some brokers or advisors may just look to get standard information to present to prospective buyers. The problem is that a cookie-cutter approach like this will fail to maximize value as it does not distinguish the nuances of the business. As a result, make sure you work with someone that appreciates the true value of your business and will work to effectively communicate that value to any prospective buyer.
2. Financial Preparation
If you have not taken the time or spent the money to prepare detailed monthly financials, now is the time. Before a prospective buyer dissects your performance, you must do the same. Look at your monthly expenses by categories; does anything look out of place? If so, you need to ask questions and get answers now. Sometimes a simple entry error by a bookkeeper can make financial performance look very different than reality – you need to understand what is going on to tell the story of your business.
3. Business Metrics
What are the key factors that drive your business? You need to present a buyer with reliable metrics to illustrate revenue, margins, etc. Present this data on a monthly basis to give a prospective buyer confidence in the financials of the business and an understanding where there is opportunity.
4. Legal – Regulatory and Compliance Considerations
Too often business owners do not want to commit the resources to addressing regulatory and compliance considerations. While requirements vary widely by state and services provided, a business owner needs to know all requirements of their business and correct any deficiencies before putting the business up for sale. An incoming buyer will be very hesitant to buy a business that has potential legal exposure. At a minimum, the buyer will look to reduce the price because of the additional risk.
5. Identify Personal and Non-Recurring Expenses
It is expected that small business owners will run personal expenses through their businesses – car leases, insurance, phones, etc. It is up to an owner and their accountant to determine what is appropriate. However, it is also critical that these expenses are very clearly defined and outlined for a prospective buyer. In doing so, the buyer will give credit for these expenses which will further maximize value.
6. Eliminate Unnecessary Staff
One of the best opportunities to quickly get value from a transaction is to eliminate unnecessary staff. Many owners often prefer to let the buyer eliminate the staff – no one wants to be the bad guy. But here’s the downside – if the buyer is the one to eliminate the staff, the seller won’t get credit in their financial performance for this additional value. However, if the seller were to have eliminated any expenses in advance of the deal, the business will be worth more at the time of sale which will drive up the price and help sell your business for maximum value.
7. Transition Considerations
Most sellers want to leave their business right after a sale closes, and often the buyer has a similar view. However, sometimes an immediate exit can negatively impact the value of the business. The business knowledge and goodwill the seller has built over time can be difficult to transfer in some situations. A seller must be honest as to whether or not they are willing to play a transitional role and communicate this with any prospective buyer. The additional benefit to a seller is that they will get extra compensation while lessening their daily management burden.
8. Lawyers and Accountants – Estimate Expense in Advance
You need to have your lawyer and accountant on board with helping to make a sales process efficient and to maximize value when selling your business. Speak with both in advance and have them provide you with both their estimated expenses as well as what they expect to provide to get a deal done. If you resolve this up front, they will work more efficiently and with a focused agenda.
9. Run Business as if It Will Be Yours for the Long-Term…Because It May Be
In the majority of acquisitions, the seller gets consumed with the sales process. The lost attention on the business can be detrimental to the purchase price and could actually cause a deal to fail. A sales process can take several months, so if an owner fails to manage their business for an extended period, revenue and profits will decline. A buyer will look to reduce their offer if this occurs. If performance declines substantially, the buyer may walk and the seller will be left with a now less valuable business to manage.
10. Put a Bow on It – to Sell Your Business for Maximum Value
A prospective buyer should be presented with information on your business in a well-organized, well-presented fashion. Financials should be up to date and easy to understand. Metrics must be useful. You must clearly communicate both the history and future opportunities for the business. An owner knows their business better than anyone else, but you need to have the right people assisting you to ensure that information is well communicated. Diamonds in the rough are great, but that means the buyer got a deal. Your business should be shining brightly from the onset to sell for maximum value.
Michael Roub
P.S. If you would like to learn more about how Inflection 360 can help your company, please schedule a call here.
