Selling a business is a time-consuming and disruptive process that can often frustrate business owners. Taking the time to thoughtfully prepare for a sale can make the process easier. It may also provide insight into business costs and operations that can lead to initiatives benefitting the business, whether or not a sale occurs. Here are two ways to improve the sale process and achieve the highest possible price in the transaction.
Hire experienced advisers and involve them in the process early
Experienced advisers can help you determine what potential buyers will view as the strengths and weaknesses of your business and make suggestions for improving those weaknesses. They also can help you develop reasonable projections, understand potential valuation issues such as add-backs and synergies, set a realistic expectation for a sale price and develop a story that justifies your valuation prior to a buyer starting due diligence.
Advisers frequently provide their greatest value early in the sale process. They can help organize the process, identify issues that are likely to come up in due diligence and plan ways to proactively discuss those issues with a buyer. A seller also has the greatest leverage early in the sale process, and experienced advisers can help owners use that leverage to their benefit. If an owner shows up at an adviser’s office with a signed letter of intent, he or she likely will have lost an opportunity to negotiate the most favorable terms possible on important items such as indemnification.
Finally, experienced advisers will take stress off of the seller by handling the day-to-day deal process and working directly with the buyer and its advisers, leaving the owner more time to continue to run the business.
Consider the sale price you need to maintain your lifestyle
Most advisers have heard a nightmare story about a business owner who sold his or her business at a good price, only to realize that the price wasn’t enough to accomplish what he or she wanted after closing. Owners frequently want to use a portion of their sale proceeds to fund charitable endeavors. They need to consider whether they’ll be able to generate sufficient annual cash flow with the sale proceeds remaining after that charitable work to maintain their current lifestyle.
In planning their post-sale cash flow, owners should also consider expenses that have been funded through the business that may now need to be funded by the owner, such as health insurance and country club memberships. Finally, if the seller is a serial entrepreneur, there may be a desire to quickly begin looking for the next project and use sale proceeds to fund that new endeavor. It’s important to limit the amount that you commit to avoid putting too much of the sale proceeds at risk in a startup venture or other opportunity with a future that is both appealing and uncertain.
To access two more tips from Pete Van Euwen on how to prepare for the sale of your business, visit www.smartbusinessdealmakers.com/articles/topic/dont-be-caught-unprepared/.