Success is in your hands
1) 10 Key Points For Selling Your Business
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Every year, thousands of middle-market companies change ownership. Although the reasons for selling may vary, the common goal is maximizing proceeds from the sale.
Far too often, many of these business owners do not realize the full financial benefit from selling their company because they are unprepared. This is a pivotal financial event requiring planning and the marketing guidance of experts to maximize the benefit from all the years invested in the business.
Sellers who are well prepared will be positioned to maximize the potential rewards and minimize the risks by avoiding costly mistakes. Here are ten key points to remember when preparing to sell your business.
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1. Prepare a Formal Exit Plan
Every business owner will eventually exit his or her company – either through sale, transition or succession.Many owners are so involved in the day-to-day challenges and activities associated with running their business that they fail to prepare for their eventual exit. Exit planning takes time and requires a clear view of objectives and careful consideration of appropriate options. A properly designed exit plan protects the net worth of a business owner and maximizes the value of the business. As a blueprint for satisfying personal needs and achieving financial objectives, it places the business owner in control of why, when and how to exit.
2. Seek Professional Advice
Selling a privately held business is often the largest and most important financial event of the owner’s life.A successful sale of a business requires a carefully planned and methodically structured process to maximize sale price. Few owners are prepared to navigate this complex process on their own. The right professional intermediary such as CK Global Solutions can provide invaluable advice, guidance and representation. The benefit of experience and an independent perspective can maximize selling price and minimize selling time.
3. Understand the Value of Your Business
Value is not obvious, nor is it constant or consistent.The value that an accountant places on a business can vary significantly from its value in an M&A transaction. One deals strictly with financial statements, while the other considers the many subtleties that determine market value – what buyers will ultimately pay. One focuses on past performance and the other looks to the future. In addition to assessing past earnings, it is important to evaluate off-balance-sheet assets such as good will, customer lists, proprietary technology, brand recognition, strategic strength, future ability to grow and other intangibles.
4. Sell on Your Schedule
To maximize the value of your business, choose your exit time and avoid a forced sale due to unforeseen circumstances. Selling when the market is right based on your schedule presents an opportunity to maximize business value. Costly mistakes allow factors such as illness, age, unplanned retirement and other similar considerations to dictate timing. Taking control of the process means being proactive, knowing your personal life objectives, watching the market and seeking the guidance of transition professionals.
5. Have Complete Documentation
Quality documentation is essential to attract the right buyers and answer their questions without delay. Documentation prepared from the perspective of potential buyers can turn a company’s past into a valuable future. Complete and well-prepared documentation will present a realistic, defensible foundation for the company’s value and substantiate buyer expectations of future earnings and their return on investment. It provides a basis for meaningful comparison with other investment opportunities and a compelling view of how the business is likely to perform in future years.
6. Select the Right Buyers
Care is needed with potential buyers you already know, such as vendors, customers and competitors. These kinds of buyers frequently lack the means and motivation to pay maximum market value. Sophisticated industry buyers who have strategic acquisition goals are often willing to pay the highest amount due to a strategic advantage to their current operation. Private equity groups, sophisticated buyers in the business of acquiring companies, foreign buyers and industry strategic buyers are among the most desirable in realizing optimum value. It is important to pre-qualify buyers and use confidentiality agreements before releasing critical business details.
7. Deal with Multiple Buyers when Possible
Multiple buyers create a competitive environment and a sense of urgency. Without other prospects, the seller has fewer options and limited leverage to obtain the desired price and terms. Multiple buyers can maximize the market value of the business and avoids a single buyer controlling a transaction and weakening the sellers negotiating position.
8. Understand Buyer Motives
Understanding why a particular company may be important to a buyer can be of great benefit to maximize value. Gaining a clear perspective on how your business is seen in the marketplace by potential buyers is critical. This helps with correctly pricing your business and setting expectations. Many corporate buyers use acquisitions as a preferred strategy for achieving expansion goals, improving operating efficiency or increasing profitability rather than building it internally.
9. Emphasize Value, Not Price
Focus on value, earnings potential and return on investment. A carefully structured marketing plan that properly positions the business in the marketplace, along with accurate and current documentation and access to the right buyers will all help to maximize market value: what a buyer is willing to pay.Negotiating business value factors such as future earnings potential, dividend-paying capacity, strategic advantages and return on investment are invaluable to maximize market value.
10. Focus on the Future
Focus on future performance, opportunities for earnings growth and strategic advantages. It is important to focus potential buyers on the future potential and not just the past performance of the business using multiples or averages that can result in an unrealistic perception of value. To maximize value, emphasize the company’s future earnings potential and its ability to produce the desired return on investment. Explain the past and sell the future.
