Selling Your Business? Here are 4 Things You Need To Do To Get Top Dollar
By Mark Wardell @MarkWardell | October 7, 2014
So, you’re thinking of selling your business. If you’re a first time seller, you might not know what to expect from this process. Exactly how the sale will go depends in large part on the shape your business is in and on your particular objectives. Is your sole objective to find the highest bidder or is it to find a buyer aligned with your corporate culture? Maybe you’re simply ready for a major lifestyle change.
Whatever your motivations, one thing is for sure: before you sell, you’ll want to do everything in your power to position your enterprise as the most valuable investment possible.
Here are the four most critical things you can do as you head towards selling your business:
Be Transparent with Your Numbers
A buyer needs to believe that the information they are looking at is grounded in something concrete. The more easily they can see where the information comes from, the more they will trust the data.
To illuminate just how important transparency is when it comes to an actual sale, I reached out to the team at Sequoia Mergers & Acquisitions, who’ve managed the sale of scores of BC’s top companies.
Brent Cunningham, a Partner at Sequoia, explains:
“Sooner or later a buyer will find the 'skeletons in the closet' so it’s always best to disclose both the good and the bad (remembering that sometimes what appears to be bad to you is an opportunity to the buyer). If a buyer finds the undisclosed information on their own pre-closing, the deal will likely collapse and if the buyer finds the undisclosed information after the sale, the seller risks a lawsuit.”
In other words, hiding information is never a good idea.
Cunningham recommends sending financial disclosures in stages, and questioning buyers before they receive additional details.
For example, as you develop trust with a buyer, consider asking the following:
- Why are you interested in my company?
- Have you bought any companies before?
- What is your company's financial ability to close a deal?
- How do you see the proposed structure (amount of debt, etc.) of a deal?
- What do you plan to do with my company post transition?
Demonstrate Growth Potential
A buyer buys the future and a seller sells the past. For this reason, I encourage people to have a growth plan already in place when selling a business. Not only is a sale more likely, it’s also more likely to sell for a stronger price.
Cunningham agrees. “Having a growth plan is a reflection of a thoughtful and strategic management team - and few things are more comforting to a business buyer than a quality management team.”
That said- keep in mind that your buyer’s idea of the future may be different from yours and the last thing you want is to inhibit the buyer's imagination of what they think they can do with the business.
If your business is highly reliant on you (the owner) then you’ve got a much riskier and ultimately less valuable enterprise on your hands. Before you sell, do everything you can to make the business an investment that stands on its own- apart from you.
In some cases this will require putting your sales plans on hold in order to get your business in better shape.
Trying to sell your business before it’s ready is never a good idea, yet I see this mistake often. Unfortunately, the result is a business that either doesn’t sell at all or the money offered is disappointingly low.
The good news is that business owners can rectify sell-ability by putting in place a set of tools to improve the value of the business, such as employee manuals and executive dashboards. Any business can increase its operational independence by systemizing operations and monitoring progress towards measurable objectives.
Cash Flow (Predictability) is King
Cash-flow is a major driver when it comes to business value, so the more confidence a buyer has that the money will keep flowing after the sale is made, the better.
You can demonstrate cash flow predictability by turning your marketing and sales processes into a predictable money generating machine. This is done by documenting the system and by measuring each step along the way. This creates a transparency for the buyer that significantly increases their confidence in the numbers they are looking at.
So, as you gear up for the impending sale of your business, be sure to adopt a buyer’s perspective and carefully consider these four key elements. As you go through the process of doing this, you’ll end up with an “investment grade” business on your hands. This is the business that gets top dollar.