Selling a business is a complex and multifaceted process, and it shouldn’t be approached haphazardly. In fact, Walden Principal and serial business owner Sara Burden says savvy business owners should prepare to sell from the very first day they open their doors to position the company effectively for when the time comes to exit.
If you haven’t started preparing, however, it’s not too late. Business owners can begin preparing for an M&A transaction now with Ms. Burden’s list of strategic recommendations.
1. Prepare to Sell by Establishing a Foundation of Excellence
Establishing an excellent foundation is the first key to preparing a business for an M&A transaction. Buyers are looking for meticulous bookkeeping and strong, consistent financial records over multiple years.
Establishing this foundation includes hiring or partnering with the right people, including a good accountant, a good lawyer, and a leadership team who can keep operations running effectively without day-to-day input or micromanagement of the owner.
“Preparing to sell your business requires strong financial and legal guidance, a well-defined go-to-market strategy, and clear, measurable goals,” Burden says. Meticulous bookkeeping is also essential, as “prospective buyers will be deterred by messy books or inconsistencies year over year.”
2. Build a Robust Management Team
Developing key personnel and setting up a responsible management team is another vital way owners can prepare their companies for a sale. A strong management team demonstrates stability and reduces reliance on the owner, making the business more attractive to acquirers.
“Buyers want to know the business is going to continue to operate,” Burden says. “They want to know the management team is properly trained so the owner can take a two or three-week vacation without worrying things will fall apart.”
3. Proactive Planning with Advisors
Involving legal and financial advisors early in the planning process ensures the business is structured and operated in a way that maximizes its value for a future sale, even if a sale is years away.
“If you are going to sell your company in five years, you should still bring a professional advisory group into the plan from the get-go,” Burden says. “As an owner, you can direct them to help you make everything as perfect as it can be so you can attain the best value possible out of your business.”
4. Adapt to Market Dynamics
In most cases, savvy business owners are already keeping their fingers on the pulse of what’s happening in their own marketplace. Staying informed about industry trends and proactively adapting the business model to manage those trends can significantly impact its long-term viability and attractiveness to qualified buyers.
“Even the soothsayers who tell us what the markets are going to be 18 months out don’t get it right very often,” Burden says. “But you definitely want to sell your business when it’s on an upward swing to get the value you want out of it.”
5. Navigate Legal & Tax Implications
In addition to planning for an exit and maintaining market positioning, Burden recommends regular consultations with legal and tax professionals as you prepare to sell in order to ensure compliance with all relevant regulations and minimize potential liabilities.
“Laws and rules change all the time,” Burden says. “The best advice we can give is to stay in communication with your CPA and with your lawyer and ask if there is something you should be aware of, or doing differently.”
6. Define Your Exit Strategy & Expectations
While it’s beneficial to have a general idea of your preferred exit path, such as an outright sale, partial sale, or a transaction involving a succession plan, maintaining flexibility allows owners to capitalize on advantageous opportunities when they arise.
“We encourage owners to remain opened-minded about the structure of a potential transaction; to not to lock themselves in a box so they’re open to whatever opportunities a buyer brings to them,” Burden says. “Otherwise, the close confines of ‘the box,’ causes the buyer base to become so narrow that’s it’s almost impossible to complete a deal.”
Similarly, it’s crucial to base valuation expectations on a thorough market analysis and consider factors such as industry benchmarks, company performance, and the competitive landscape.
7. Maintain Focus As You Prepare to Sell
Finally, it’s essential to maintain the day-to-day operations of the business to preserve its value while navigating the complexities of a sales process. Demonstrating ongoing success to potential buyers can bolster the seller’s negotiating position, and failing to ‘mind the store’ can create insurmountable problems.
“We had a great client who was making good money and received an offer, but the buyer’s due diligence became so protracted over a number of months that the deal ended up falling apart. As time dragged on, the seller had taken his eyes off the ball, allowing revenues and profitability to dwindle,” Burden says by way of example. “The dropping revenues scared the buyer and they ran away. The seller is now working to build the business back to its previous levels.”
By diligently implementing these strategies, business owners can significantly increase their chances of achieving a successful and profitable exit — whenever the day arrives.
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