10 Steps To Successfully Sell Your Business
Copyright 2006 John J Reddish
Getting your best deal when you sell your business is a major
challenge. Unfortunately, it is a process all too many business
owners take too lightly. They end up settling for less when they
fail to employ strategic business thinking to all elements of
the selling process and transaction. To help you get your best
deal; I have developed a ten-step process you can follow to help
you achieve your goals.
One thing I've found is that getting your best deal often
depends on recruiting and using the right team of advisors.
These advisors include your attorney, accountant, financial
planner and consultant and/or investment banker. These
professionals comprise the team you will need to achieve the
most dollars and the best terms. Each has his/her own specific
skills and you will need them all. The few dollars you spend for
professional assistance (usually 10%, or less, of what you
receive from the sale (as you receive it) will more than pay for
itself in getting you a better outcome. The steps in this
process appear deceptively simple but require discipline, hard
work and sometimes painfully honest self-assessment. They are:
#1 Develop two written lists of goals -- your lifestyle goals
and your business goals. In short, what do you want to happen in
your life once you've sold the business? Develop each set of
goals separately. This helps you keep perspective. Compare both
lists. Don't be surprised to see conflicts. Resolve all
conflicts between the two goal sets and prepare a coordinated
list, keeping business and personal goals separate but on one
sheet of paper. Share the list with your leadership team. They
will, in most cases, be staying on (and locking them into their
jobs may be key to achieving your objectives). Ask them for
their opinions -- in writing -- of both the goals and the
potential impact of attaining the goals on their areas of
responsibility.
#2 Use your lists of goals to generate a criteria checklist.
Items for this checklist include: minimum selling price (see #3
below) required to close any gaps in your financial (estate)
plan and ensure success in your retirement or in your next
endeavor; type of buyer most suitable to run the business;
timetable for sale; objectives to achieve prior to any sale
(including employment contracts, shadow equity or equity for key
team members); transition period and contract for you; desired
terms and conditions; and, other financial issues. Divide your
completed checklist into MUST items, those things a buyer and/or
sales transaction must have for you to close a deal, and LIKE
items, those which while nice to have are not essential to the
sale. A good, solid checklist takes time to develop, but it will
keep you on target.
#3 Pricing is important. While you MUST get your minimum-selling
price, you will almost certainly want more. In addition, you
probably want to establish an asking price that allows some room
for negotiation. You should have your consultant or one of the
other team members prepare (or commission) an independent
valuation of the company. The valuation will give you a good
starting point in establishing a realistic pricing strategy.
Ideally, the valuation should allow you to compare several
valuation approaches to the company's worth. These computations
can be based on: multiples of earnings approaches; asset value
plus goodwill; or some of the many sophisticated cash flow
models. Knowing how much to ask and under what terms are central
to your success.
#4 Take a look at all the preparations completed to date BEFORE
even looking for a buyer or dangling a tantalizing "carrot" in
front of an eager prospect. Be brutally honest with yourself.
Have you considered all the contingencies? Have you reviewed and
considered all your financial plans? Would strengthening the
business over a short period result in a greater selling price
or better terms? ARE YOU READY TO LET GO AND WALK AWAY?
#5 Evaluate specific potential buyers against your checklist.
Prospective buyers for small- to medium-sized companies can be
found in local and regional publications, as well as The Wall
Street Journal, under Business Wanted or Business Opportunity.
Investment bankers, venture capitalists, local banks,
accountants and attorneys, in addition to many business brokers,
are all potential referral sources for transactions. Your
management team may be ready and willing to make you an offer. A
family member might want to continue the business. Customers
and/or vendors and/or competitors might have interest. Research
companies and individuals whose business interests fit your
criteria, but don't make any announcements until you are truly
ready to go public and tell the world. (Once you announce the
company is for sale, there will normally be more "tire kickers"
than you want to deal with.) In addition, some competitors will
almost certainly use such information as a way to attempt to
"raid" your key accounts. Match every prospect against your
MUST's. If you discover a "must" missing, move on the next
prospective buyer.
#6 Develop a short list of prospects composed of those who
inquire, those whom you feel might make a good match and those
whom you feel might make a good transaction. Rate them on their
potential attractiveness on their potential ability to complete
the deal, grow the company and complete all payments to you.
Once you have a working list to go with your criteria you, or
preferably a member of your team, can begin making contacts. A
significant show of interest results in the prospect signing a
Confidentiality Agreement. It is at this point that you will
normally begin to disclose financial and other data to the
prospective buyer.
#7 Once the Confidentiality Agreement is in place and as you
prepare to disclose information, have your team conduct a
thorough due diligence review to qualify any prospective buyers
-- companies or individuals -- identified above BEFORE releasing
your own information. Serious buyers should insist on reviewing
records, tax returns, financial statements, public disclosures
and other documents. They should speak with your accountants,
attorneys and advisors. They should want to speak (and this
needs to be handled very sensitively), with your vendors,
customers and employees. They should also be prepared to prove
they can complete the transaction. Due diligence is essential to
both sides in crafting a win-win deal.
#8 Begin the challenging task of negotiating the sale. My advice
to clients (buyers and sellers, alike) is to strive to control
the terms rather than the price. Several years ago, I negotiated
a deal in which the seller and buyer were far apart in their
estimates on what the company was worth. We structured the
agreement of sale so that the net present value, the cash value
today, equaled what the buyer wanted to pay, but the total
dollars for the transaction over time were more than the seller
originally asked. Both sides felt like they won. Other advice I
give my clients is to go gently into negotiations. Realize,
particularly in the initial discussions leading to the
transaction that you may be perceived as an entrepreneur more
interested in having the business "adopted" than in sold; or as
a large, inflexible, corporate type intent only on selling a
product line or division before a certain date or at a certain
price; or as shareholder representatives who don't know the
business or its potential or future and just want out. Getting
past these perceptions is key to enhancing deal value. All
require different approaches and great sensitivity.
#9 Identify and align your options in relation to being paid at
closing and after the sale. Knowing what you want is critical to
getting it. A brief list of options includes: a strictly cash
sale due at closing; a tax free exchange of stock; cash plus a
promissory note plus an employment contract; cash, a promissory
note and a non-compete agreement; venture capital. The list goes
on. Be sure at closing that you have removed yourself from any
contingent liabilities arising from transactions in the old
company. Such transactions may include: unpaid taxes; unexpired
leases; lender UCC's (Unified Commercial Code filings) that have
not been satisfied. Failure to clear these items could result in
costly comebacks at a later date. Allow an average of from 2-6
months for serious buyers to identify and line up funding
sources.
#10 Closing can be tricky and unfortunately has been the
unraveling of many deals. Again, go gently. A deal isn't done
until all parties have signed off on the transaction. One deal I
witnessed fell apart at the closing table when one of the
advisors, claiming he was "emotionally moved" by the integrity
exhibited by both sides, read a poem he had written for the
occasion. After the closing, your new life begins. You are
either out the door or an employee who will (probably) be out
the door once the new ownership gets a handle on running the
business. (Employment contracts notwithstanding, most former
owners are asked to leave long before their due date.) More
importantly, the "buck" now stops somewhere else. Remember that
and stand aside. Whatever your choice, good fortune and good
luck to you as you explore your options.
If you explore selling your business, getting the right
professional help can mean the difference between a successful
sale and the frustration of time, effort and hope wasted.
Solidify your standing in the sale by completing your research
and consultations with your advisory team members in advance.
With proper planning, you can get the very best deal when you
sell your business.