After all, decisions made today, could have a dramatic impact on value tomorrow.
Thorough preparation is everything in maximising value. Selling a business can be fraught with risk if it’s a badly prepared process.You don’t want a fire sale, you don’t even want a smouldering sale. You want clarity, credibility and control.
Once you’ve decided on exit, what are the essential steps to be “sale-ready”?
(1) Select advisors carefully (and early)
This is no time for amateurs. Selling your business is likely to be a one shot event; you need genuine experts.
Your accountant, solicitor and deal advisors need to know what they’re doing and have a track record in closing deals (ideally in your sector).
Many a deal has gone west because vendors were poorly advised and/or loyal to advisors who claimed to have expertise but were simply not up to the cut and thrust of deal making, whilst still pocketing a handsome fee.
Getting deals across the line is not easy and is full of potential tripwires so don’t just stay loyal to incumbents; it could cost you a fortune.
Conduct a beauty parade if necessary and get your advisors in place. Find out from them, before going to market, what you need to do.
(2) Understand the value drivers in your business
Business owners sometimes fail to understand true value drivers in their business. Be it your client base, the brand, employees, IP – or indeed, you.
Understanding where the value is, you can work towards reduces the risk of it disappearing out the door when a new owner takes over. A buyer will be evaluating your business on the basis of where the value is and what chances of it disappearing overnight.
If the value is in you, put in place a management structure to reduce the reliance on you.
(3) Clean out the skeletons
Do you have outstanding litigation? Have all your leases been renewed? Are you at risk of losing key suppliers and/or employees? Is there an uncertain balance sheet liability?
You need to review your business from top to toe and assess where potential deal breakers might emerge. Often a buyer won’t find or become aware of these issues until deep into a deal, potentially during due diligence. You don’t want issues emerging at that late stage. It can undermine trust, lead to a price chip or worse, the loss of a deal can have much wider implications than immediate disappointment.
You want to be presenting a clean business where the chances of anything unexpected emerging are slim. Why not conduct some up-front due diligence and hand potential buyers a document detailing the work done?
(4) Settle key employees
Appreciate the importance of individuals within your business. You probably already know who the key employees are, the question is how they react when finding out you’re selling?
Buyers will ask the same question. How secure and incentivised are they to stay? What will be the impact if they leave? You need to focus on these questions in advance and act to minimise the risk.
(5) Understand the timeline and distractions
A crucial element of any business sale is how it impacts on the business owner(s). Even smooth transactions can become emotional roller coasters of uncertainty and risk.
It can be highly distracting to the ongoing management of a business and the last thing you want, with a deal being negotiated, is for sales to go off a cliff or other management issues to emerge.
The average timeline for the sale of mid-sized businesses is six-to-nine months. Exiting is a natural and just reward for the work, risk and effort put into the business by the founders/owners but, understand the potential impact of the process itself.
Andrew Weaver is CEO of LawyerFair.
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