If you are like most successful family or private business owners, you have worked hard, experienced highs and lows over the years and learned many valuable lessons along the way. You know your stuff. However, unless you have bought or sold a business, selling your business is a whole other ball of wax.
For first timers, selling a business is an emotional, stressful, intense and often perplexing experience – to not put too fine a point on it. While some owners handle the process better than others, there is no way to avoid the pressure and tension of a sale transaction. The good news is you can reduce your stress levels by educating and preparing yourself. The best time to do that is in the two year period before you go to market, rather than in the months immediately before a sale.
Here are five things you can do to help maintain a zen-like calm:
1. Get Smart – Speak to those who know the market and your place in it. Vancouver has no shortage of very good and very experienced investment bankers and business brokers for businesses in the “mid-market” space. The bankers and brokers will be thrilled to hear from you given the opportunity you represent. Active brokers will know the market well and will have opinions and thoughts on your business and value.
Meet with a few to get a sense of who you prefer and who you think you can work with over an extended period. Once you have made your selection, provide the broker with more information with a view to getting their thoughts on your valuation and what, if anything, you can do to improve your position before going to market in a couple of years. Most brokers take the long view and, as such, will be happy to give you their thoughts without being fully engaged.
2. Assemble a Team – Speak to and line up professional advisors. M&A is a very specialized area and not all accountants and lawyers have the knowledge and experience necessary to effectively guide you and advocate on your behalf. Like with the brokers, speak with a few to get a sense of who instills confidence and who you would like to work with. Given the length and intensity of the sale process, it is important you select advisors in whom you have complete confidence and trust.
It is important you assemble your advisory team in the two year period prior to going to market as there may be steps you can take within that time frame to improve your financial and legal position. If the advisors are new to you, a two year buildup also provides time to develop confidence and rapport.
3. Take a Hard Look in the Mirror – Conduct reverse due diligence. Conduct the same due diligence on your business that a buyer will perform. The benefits are numerous including:
(a) identifying any problems before a buyer does;
(b) cleaning up – removing assets that are not part of the business and ensuring that assets that are part of the business are owned by the right entity;
(c) having time to take remedial steps if issues are unearthed;
(d) gathering and organizing the same due diligence materials that will be needed for a sale process; and
(e) enhancing credibility and negotiating position by being organized and prepared.
A strong, well organized financial and legal profile is an important value driver and essential for a smooth, successful transaction. Being ready will maximize the value of your business or, at the very least, help avoid a price renegotiation. The advisors listed above can help you formulate a plan.
4. Consider your Legacy – Who is your ideal buyer? While money is important, so too is your legacy. Consider what you want for your business and employees post-closing. Your desired legacy will often inform the type of buyer you select in a competitive bid process. Make sure you let your investment banker or business broker know of your desired legacy, and if there are any specific buyers who you prefer or wish to avoid.
5. Strengthen your Management Team – The business should thrive without you. It is critical that the goodwill value of your business is not tied entirely to you or one key person. Buyers want to know the business will be successful without any single individual running the show. Make sure your management team is strong, incentivized and loyal. Consider offering bonuses or phantom equity to keep key employees committed and improving the business. You may want to consider a retention bonus scheme for certain key employees that can be utilized as part of a sale transaction.
If the sale of your business is on the horizon, even if it is years away, do not procrastinate. The business world we live in, and especially the M&A world, expects and rewards efficient, prompt exchanges of information. To have a competitive advantage and command premium pricing, you and your business have to be organized and ready to respond. You never know when you might receive that unsolicited offer that is too good to refuse. Do not blow it by being unprepared.
We can help you move forward. If you have questions or would like to generally discuss how the M&A process might look for your particular business, please do not hesitate to contact the writer.