The toughest, most important sale you'll ever make in your business - is Selling Your Business! You need to step back, think and plan - understand the process and what lies ahead - before you act. You need an exit strategy!
What happens without an exit strategy?
No sale. Or, at a much lower price. Without a plan in place, too many owners wake up after decades in business to the depressing reality that the business is not worth anywhere near what they need or want. It may not be sellable at all. Because fixing things can take a substantial investment in time and money, you need to start now.
Main Focus Areas for Exit Planning
Timeline – The sale process can take a long time, typically 9 – 12 months, maybe more. You need to keep working the business full speed ahead while at the same time participating in the sale process.
Data – Your representative needs to learn everything about your company to be able to best represent you and maximize the sale price. That information will be critical in building the marketing package and having credible conversations with potential buyers. This data gathering can be very painful if your data and bookkeeping are not in perfect condition. Start there!
Agree on a value range – After getting an initial estimate of value, work with your financial advisor to see if this fits your personal financial planning needs. Whatever the final sale price is, you will get maybe 60% of that after taxes, professional fees and more. Decide early whether you can sell today or if you need to work on building value.
Marketing Your Company – Marketing documents start with the “teaser,” a one-page, high-level summary of the business. If interested, buyers will be screened for a good fit and financial capability to make the purchase. Then, under a Non-Disclosure Agreement (NDA), they will receive the CIM (Confidential Information Memorandum), an in-depth picture of the company.
The Buyer Pool and Screening – You want to build out a broad buyer pool with some thought as to the ideal profile for the buyer of YOUR company. This is a critical role for your representative – finding that subset of potential, viable buyers. This can save you time, aggravation and money. Why are they buying and can they fund the purchase?
Your Advisory Team – Don’t go it alone! Engage with an exit strategist for preliminary discussions to understand the process and what lies ahead – before you act. Work with your team to make sure they are collaborating – Exit Strategist, Broker, CPA, Financial Advisor, Attorney, consultants in a variety of subject areas.
Negotiations, the LOI and Getting to the Closing – After reviewing the marketing materials, buyers will submit a Letter of Intent (LOI). This is a non-binding, but good-faith outline of their offer. You may get more than one LOI, a nice situation in that you have competition. You will negotiate exclusively with one and, if all goes well, head to the closing table. You will have gone from thinking about “selling my business” to “sold!”
What You Are Doing Throughout this Time – You need to be available as needed for the sale process, but your advisory team will minimize that time so you can keep working on value creation and solutions to problems.
Other Critical Pieces of the Puzzle:
- Sale Structure Options: There are more ways to sell than you might think.
- Business Value: Your opinion doesn’t matter. You need to learn what a buyer considers to be valuable.
- Value Creation and Sellability: once you know what a buyer looks for, focus your business decisions on those areas.
- Timing of the Sale: Start a plan now for when you want to sell and for how much.
- Communication: Include key employees and family in the planning.
We would like to thank our contributing author,
David Shavzin from The Value Track for writing this article.
Have a question or need a referral to another professional? Contact Cheryl at cheryl.blazej@blazejaccounting.com