Here’s a universal truth about earn-outs: buyers love them and sellers hate them. From a buyers point of view, what could be better? We are deferring a portion of the purchase price and […]
Prepare for the Sale
For most owners, gearing up for a sale is like heading for the Super Bowl. It’s stressful, it’s exciting, and a wild ride. It’s also hard, too.
Aiming for a “win”? Prepare like the big game is on the line.
As a business owner, you know that every major decision requires careful thought and preparation. And what bigger decision is there than opting to sell your business?
Eventually you will transition out of your company (internal, external, or “die at your desk” – but you will transition!) If you think a sale may be in your future, it’s not as simple as putting up a for-sale sign and waiting offers to roll in.
There are many things to take into consideration, and many steps to prepare. Making strategic decisions will help you achieve the highest possible valuation for your company.
- Clean Up Your Balance Sheet- Investment Bankers know that deals "Start on the P&L, and Close on the Balance Sheet." Cleaning up your balance sheet puts you in a better position at closing
- Understand and Manage Working Capital- If you’re like most successful business owners you are risk averse - and debt averse. We find that most business owners “over capitalize” and are cash heavy to prevent a rainy day. Unfortunately this overstates working capital requirements - and effectively reduces your sale price!
- Viable and Vibrant Business- No one wants someone else's problem. If you are considering a sale, you should also be considering "Is this a business I would buy?" Here are some other questions that might guide your thought process: Is the business profitable? Does the owner draw a wage (beyond profits)? Is demand increasing for the product / service? If you answer "No" to any of these that means you need to get to work on addressing the issue(s).
- Accurate Data and Financials- Business owners spend years trying to reduce their tax bill. Sometimes that takes the form of obfuscating expenses. If you are getting ready for a sale, one of the most important items on your list should be getting your books cleaned up and ensuring that all data portrayed to a buyer is accurate and verifiable.
- Get the Right Team in Place- Can't stress this one enough. Selling a company is a team sport. You are not the quarterback. You're more like the backup quarterback: you don't have the experience, but you can ask the smart questions, and offer input. And you rely on the rest of your team to get the job done. (Jet's fans - just go ahead and ignore this whole bullet point. You probably don't have a good frame of reference.)
The above is a good starting point, but it’s really just the tip of the iceberg. Successful exits really are the culmination of a lifetime of work. Successful entrepreneurs put in the same level of diligence and preparation towards their sale as they do on running their company. Working through a defined, structured, Exit Planning process is a great way to increase the returns on the “sweat equity” you have in your company.
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How can Quantive Help?
Our Exit Planning Program is designed to help ownership proactively plan for their “third act” – life after business. It starts with our gap analysis program: Launch Pad.
Our Recent Writing on Exit Planning
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