The decision to sell the business has been made. All stakeholders have reached a consensus to move forward with the decision. The next question in everybody’s mind is how to go about the daunting process.
Among others, one of the most important goals is to get a price representative of the business’s economic value or higher. While the perceived valuation may vary from buyer to buyer, the following are advantageous tips that increase the likelihood of selling your business for the maximum price.
1. Devise A Plan To Navigate The Sale Of Business
It is important to know the objectives you need to meet by selling your business. Once you have an idea of what you are aiming for, the plan to get there can be decided. It will also help you choose the right people from your company’s management to help you with the task ahead. Initial planning requires you and your team to do the following:
- Assess what potential buyers value and whether you can tweak your business operations to cater to these needs.
- Scrutinize the business’s operations and make adjustments wherever necessary to increase the perceived value associated with the efficiency of the operations.
- Conduct preliminary research with the assistance of key personnel from management to formulate a thoughtful list of acquirers and decide the means to maintain confidentiality until it is the right time to disclose the decision that the business is being sold.
- Evaluate the arrangements needed with suppliers and customers.
- Decide how to retain key employees whose leaving might hurt the sales deal.
- Create a plan to ensure the continuity of day-to-day business operations during the sale process.
2. Get Your Financials In Order
Financial Statements serve as the basis for the valuation of your business. It is, therefore, necessary to ensure that your books are well maintained, and your financials are in order. Potential buyers, as well as investment bankers, M&A advisors, or brokers, would want to see as many details as possible to gauge the worth of the business. In addition to working with your chief accountant to streamline financial reporting, it is vital to consider the intangible value associated with your brand name, intellectual property, and goodwill of the business, if any, to determine
3. Develop Your Advisory Team
It is necessary to understand that selling a business encompasses a lot of complexities, and you cannot do it all by yourself. Attempting to handle everything on your own can result in grave consequences. Having qualified people with a proven track record can enable you to make the most of the selling of your business.
A typical advisory team should consist of a financial advisor, an investment banker/ broker who will help in valuation and finding potential buyers, a CPA or a tax advisor who can advise on taxation matters, and a business sales lawyer/ M&A attorney. All of these need not be involved in all matters related to the sale of the business; each contributes a special part along the way. The benefits of having capable people on your team far exceed the expert fee associated with hiring them.
4. Decide The Right Time To Sell
Maximizing the sale price of your business has a lot to do with the timing of the sale. Like all other markets, M&A market dynamics change frequently, and it is important to monitor the fluctuations and trends closely. It will help you determine when is the right time to approach the potential buyers and make your pitch. Selling when the market is bullish will assist you in getting a more-than-fair price for your business.
Additionally, an internal factor worth considering is waiting until all your current business operations align with the sales projections and revenue & profit forecasts. Negotiations can take anything between 3-12 months. Once you start correspondence with the potential buyer, you cannot put it to a halt. Hence, you need to streamline efficiency into operations for your projections to appear reliable, not overstated.
5. Identify Serious Buyers With Aligned Strategic Goals
When aiming to sell at the highest possible price, finding buyers to whom your business is a strategic fit should be a high-priority item on your to-do list. Each company has strategic objectives like vertical integration, horizontal integration, portfolio diversification, gaining a competitive edge over their competitors, etc. If acquiring your company puts them one step closer to meeting those goals, they will likely be willing to purchase at a higher price than the market value. Once you identify such buyers, approach them with confidentiality in the initial stages of the negotiation.
In addition, assessing whether the potential buyer has the necessary funding to follow through is of great value. If you are concerned about the company’s future, business continuity, and what becomes of the current employees, it is important to understand the acquirer’s intentions.
6. Negotiate Terms & Close The Deal
In acquisitions, both the buyer and the seller have a list of demands that they want to be met. It is worth noting that you must keep an open mind while negotiating the terms of the sale. Rigidity on both sides can be the prime reason for the failure of the process. On the other hand, it is important to know what you are willing to compromise and what is non-negotiable. Having a fair idea of these, you can negotiate effectively and convey that you want the negotiations to succeed.
Preparation of transfer documents follows, and you should have a seasoned attorney to vet these documents and agreements.
Selling a business is the time when the fruits of resources and efforts invested in establishing and running the venture could be cashed. It determines the financial future of the owners, and hence it is of great importance that the sale of the business be conducted with equal enthusiasm with which the business was established and run. Understanding the market dynamics, and preferences of potential buyers, coupled with vigilance and diligence in implementing the tips discussed, makes for success in selling your business at a great price.