After working for many years to grow your business, you may have reached the point where you’re thinking about selling. Maybe retirement is on the horizon and you’re counting on proceeds from the sale of your company to help support you.
Eyes wide open
Your business is probably the most valuable thing you own, so it’s important to go into the sale process with your eyes wide open. This process is complex, with many potential pitfalls for owners who’ve failed to do their homework. In most cases, the first step is to put together a team of experts who will help you through the selling process. This may start with a business broker, who will serve as the “quarterback” of your sales team. A broker can guide you in finding and qualifying prospective buyers, marketing your company to these prospects, setting a price for the business and closing the sale. An attorney, an accountant and a valuation professional, each experienced in business sales and purchases, should round out your team. Exercise caution in building your team, as these individuals will play a critical role in the success of your business sale.
Goals for the sale
Your specific goals for the sale of your business will hinge primarily on why you’re selling. For example, if you mainly want to keep the business in your family and ensure a smooth transfer of ownership to your heirs, you need to identify the next generation of leaders and start grooming them years in advance of the sale. But if your goal is to sell the business to outsiders at the highest possible price, you should be taking steps long before the sale to boost the company’s value to potential buyers. In considering companies to purchase, most buyers will look at quantifiable measurements that will help them gauge their potential return on investment. Thus, the best way to increase your company’s value to potential buyers — and boost its sale price — is to focus on the value drivers that will be important to them. These include:
- Your financial health. Most buyers want to see a history of consistent cash flow, sales and earnings. Determine which financial key performance indicators are most important to your company’s financial health and focus on improving these before you list your business for sale.
- Your employees and managers. Employees and executives are usually the next items that potential buyers examine. They want to see a workforce that’s skilled and stable, with relatively low employee turnover. And they want to see an executive team that can keep things running smoothly after you’ve left.
- Your customer base. Most buyers are seeking companies with a diversified customer base and low degree of customer concentrations. If your sales and earnings are heavily dependent on a handful of large customers, this could be a major red flag for buyers.
- Your future growth prospects. Business buyers usually want to acquire companies they can grow. Therefore, you generally need to be able to show them a plan that demonstrates how they can grow the business after they buy it.
When to start planning
It’s really never too early to start planning for the eventual sale of your business. In particular, identify and focus on key value drivers early on so you can take steps to maximize the price when it’s time to list your business for sale. If you have questions or want to talk to someone about starting your planning, please contact the Watermark team at 317-805-0805.