A common issue among business owners considering the sale of their business, is that they aren’t sure how to begin the sale process. The same can be said for the advisors who have historically maintained vital relationships with the respective business owners. Given that the end-of-year and beginning-of-year time frames lend to personal and professional reflection for many business owners, the following list identifies five factors owners and their advisors should account for when considering the potential sale of their business.
1. Get a valuation – from an M&A Advisor or Investment Banker.
A great place to begin the sale process, or even just consideration of a sale, is to obtain a valuation. There are many good reasons for obtaining a valuation, but none is more important than if you are pondering the sale of some or all of your business. Leave the valuation analysis to experts who sell businesses for a living. Professional valuators tend to thrive in the world of valuation academia. If I were selling a business, I’d definitely prefer the real-life guidance.
Once you have the valuation in hand, make sure you also ask your valuating professional to provide their thoughts on how the purchase price could be paid, in the instance you decide to sell the business. Just because you obtain a value estimate doesn’t mean all of the money will get wired to your bank account once the transaction closes. Most deals have varying forms of consideration – cash, seller notes, earn-outs, rollover, other economic considerations, etc. – and these trends tend to change based on industry, circumstance, and the overall risk profile of a deal.
2. Meet with your Wealth Advisor (or start a relationship with one), and make sure they simulate life after a sale.
Once you have obtained the valuation and estimated consideration (cash, seller note, rollover, etc.), it is time to meet with your existing wealth advisor or begin a relationship with one, if you haven’t already. The point of this meeting is to take the facts from the valuation analysis and layer them in with your current, personal balance sheet and spending habits. A good wealth advisor will take all of these facts, estimates, and other retirement goals and do a real simulation of what life will be like from a financial perspective, if the deal were to close. If you do not have a good wealth adviser, ask your valuation analyst for recommendations.
3. Interview or meet Investment Bankers.
You will want to hire an investment banker. You already have a leg up on this part of the process if you hired an M&A professional to complete your valuation. A talented investment banker or advisor is an important ally in this process. This advisor will act as the quarterback for your entire team. (This is huge.) They will prepare you and your company for what is about to happen, construct all of the marketing collateral needed, reach out to the various buyer candidates, negotiate on your behalf, handle all due diligence, and ensure that your advisory team is keeping pace with the buying group. It’s a big load to carry, and you wouldn’t want to bear this yourself – particularly since handling these processes is ‘old hat’ for a seasoned investment banker.
4. Prepare for a competitive process.
One of the most important steps in accomplishing a successful M&A exit is to have the interest of multiple potential buyers. You don’t need to solicit several hundred buyers, but getting a wide range of opinions is important if you want to have the full spectrum of perspectives on value and strategic fit. A competitive process helps make sure you get the best price and the best terms.
5. Make time.
Before you hire your investment banker, make sure you have a firm grasp of what will be asked of you and your management team. These processes can take a toll on a business and its resources, so making sure you’ve adequately budgeted to ‘buffer’ the extra work is important. You might want to consider hiring extra people, offering ‘stress bonuses’, or just mentally preparing everyone involved in the deal. It would be a huge mistake to neglect this particular item, as time is the #1 killer of deals.
VonLehman’s M&A Advisory Services Group can guide you through every stage of the sale process. We regularly support businesses large and small across numerous markets including, professional services, healthcare, construction and real estate, manufacturing and distribution and financial institutions. Give us a call today, and take the first step in strategically preparing your business for a potential sale.