Things to look for when selling business

7 Key Factors to Selling Your Business for a Top Price

Getting the top price is one of, if not the, most important outcomes for a business owner when they sell their business.  Especially as this sale is often a once in a lifetime event.

To achieve a great outcome requires a deliberate, focussed sale process, even if it kicks off with something very informal, e.g. if someone approaches you and says ‘do you want to sell’?

Aside from identifying the right purchaser, a well-run sale process is about clear, precise communication and articulating value in simple terms and a credible way that gets the deal done.

In my experience, among the key factors to help an owner get a top price are to:

1.    Forget about perfection – just focus on achieving the best outcome.  Very rarely is a business in the ‘perfect’ condition to sell or is it possible to predict the ‘perfect’ timing to start a process and ultimately get a deal done.  My best advice is to always have your business in a position to sell and therefore you have the ability to move quickly when the opportunity arises.  To get to this point often takes years of a deliberate strategy.  However, if selling now is your preferred option, it is simply a case of committing to and running the best sale process to make the best of your current situation.  In other words, it’s nice to have the “value” of your business written down on a bit of paper, but it’s a different story to get that value from a sale process, so…

2.    Think very carefully about who you want to lead and negotiate the transaction.  If you are not completely confident about what to say (and when) and what not to say; how to deal with confidentiality; who to approach and how; what information to provide (or not) and when; or able to fully dedicate your time to the process, then you need to work with an experienced professional to get the job done.  And by “experienced” I mean in-active market experience in leading and negotiating, not just supporting or occasionally dabbling in transactions.  And, yes, you will still need your accountant and lawyer to help with the financials and getting the transaction legally documented.

3.    Be aware of who is on your side and whose interests are they looking after.  While in a perfect world everyone would treat each other equally and fairly despite their own interests, real life is something completely different.  Even if the transaction miraculously appears in front of you, there is always a time to get independent representation to make sure your interests are looked after.  The question is how much help do you need from advisors and how do you make sure that your interests are aligned (including through the fees that are charged)?

4.    Show that your business has done it before and is successful.  In any discussions that you might have with a potential purchaser, you need to be able to demonstrate value.  Track record. Client wins and key contracts.  Key achievements and wins.  Profitability.  Fixed assets (value and condition).  Working capital requirements and stock levels. This is not about just having a template for preparing an information memorandum, but being able to identify and clearly articulate drivers of value in the business is critical and helps to …

5.    Show that the purchaser can achieve those prior results (and better!).  A purchaser needs to be able to see themselves as successful in your business (and therefore why they should pay you a lot for it!).  How well do you understand the risks of your business and are you able to communicate how you manage those (and therefore are not the concern that a purchaser might want you to believe)?  Where do you see the opportunities; how well have you quantified them and what is the probability of achieving those in the short term?  What do your forecasts and budgets look like?

6.    Avoid a poorly run sale process.  Every transaction will have a life of its own and often it can be difficult to manage.  Even in the best of transactions something will happen that puts an interesting spin on things.  Often it is difficult to tell when to push and when to wait in a transaction.  There will often be logical milestones that significantly affect (for the right reasons!) the timeline and outcome of a transaction – for example, year-end financial results, key contracts, gaining the commitment of key people, decision-making processes.  However, if a process is not actively managed (including the involvement of those with current market experience), then it significantly increases the chances of a drawn-out process and, even worse, of a transaction not proceeding (execution risk).  

7.    Think about more than total price.  The terms and conditions of a deal often have more influence on what you get out of a deal as opposed to just the ‘raw’ sale price.  For example, over what period of time will you be paid (upfront vs installments, earn outs); what finance you will need to provide (if any); whether you will need to work for the business and for how long?  Not all deals are created equally and how do you know what is ‘market’ and what is not?

While each of the above might appear quite simple in concept, the reality is that there is a lot of complexity in any sale process.  It takes a lot of experience and expertise to simplify and focus a sale process to deliver the results in practice.

If you would like to discuss how the above might relate to you and your business, please call me.