Selling Your Business: Do You Need to Prepare in Advance?
Spoiler alert – YES, you do! Tackling a complex new undertaking – such as the business sale process with its many moving pieces, new concepts, and special terminology – brings with it a learning curve. It demands thought, attention to detail, and time to fully process various concepts. In addition to moving up the learning curve, when preparing to sell your company you will also have work to do on the business itself, Just as you might paint or complete repairs around your home in preparation for a sale or Selling Your Business.
You may be thinking, “When the time comes, I’ll just hire a couple of experienced M&A professionals and we’ll get it sold.” Or you find yourself overwhelmed with questions wondering how to get started. Regardless, there are several reasons why the most successful sales processes begin long before your business goes on the market.
Ensure your personal readiness. Before you plunge into the sales process, take time to dig deep into your reasons for selling, must-haves in the deal, and future plans. Too many sellers decide to sell based on a bad quarter (or year), only to realize midway through the process they’re not especially motivated to sell. That’s not only a substantial waste of time and resources for you, your M&A professionals, and potential buyers – it’s also a red flag when you are truly ready to sell.
Like the boy who cried wolf, your credibility will be suspect. And sellers should spend quality time with their financial planner and tax accountant in evaluating their future so that when potential buyers make offers, they can be systematically compared against needs.
Sellers often jump at a seemingly attractive offer for their business, only to realize late in the process that it won’t net what they need for their desired new lifestyle. Every business owner has a different set of wants and needs, including financial goals as well as plans for the company, its employees, and their legacy; every M&A deal is structured differently depending on the motivations of the parties. One of the keys to success in an M&A deal is immersing yourself in the process so you recognize the best fit deal when you see it, because the best fit probably entails far more than just the highest price.
Learn about the sale process. Selling your company is a big deal (yes, pun intended) involving a complex M&A process that has its own set of customs and requirements. You can minimize surprises if you learn about the many steps in the process, what will be expected of you, what to expect from buyers, normal time frames, and typical valuations in your industry. You can study the mistakes sellers frequently make and avoid making them.
A prepared, savvy seller is another way to impress potential buyers and maintain their confidence during the process – which is most critical when they will be working closely with you after the sale as many sellers continue to have skin in the game post-closing.
Assemble and lock in your management team. Selling your company usually means you’ll be walking away within some defined period after closing. Undoubtedly, as the owner, you perform multiple functions at the company. Have you developed a well-rounded, seasoned management team that is ready to step up and run the company successfully without you? Some, but not all, buyers bring management talent to the table, so you will be limiting your universe of potential buyers if you don’t have a complete, seasoned management team in place.
And is your team adequately incentivized to stick around during an exit event? (read more in our article, Profits Interests Explained). Hiring and keeping stellar employees is always a challenge, and both the risks and stakes escalate during a sales process. Developing and incentivizing your team is obviously not a simple or overnight fix.
Develop a great M&A deal advisor team. Experienced deal professionals, including financial, legal, and investment banking experts, are essential to a well-run M&A deal. Begin well in advance of selling your company to seek out recommended M&A specialists and develop relationships with them. To take advantage of the best offer, you need a cohesive, well-oiled team that will help you move through the sales process effectively and minimize hitches, hiccups and delays.
Refine your business records. Essential steps in the M&A process include assembling a data room that is populated with the necessary documentation and providing financial statements that attractively position the company for the potential buyer. Prior to putting your company on the market, your M&A professionals will guide you through the time-consuming data room setup and work with you to get your accounting in order to best showcase your company.
These tasks will continue throughout the sales process as potential buyers make new and different requests, but you’ll be well served by getting the bulk of the materials assembled early.
Keep running your business. Selling your business is an exceptionally demanding undertaking all by itself even when you have a team of deal professionals to manage the process. Assume you will be fully engaged with coordinating your deal team’s efforts, responding to prospective buyers’ inquiries and requests, negotiations, and recasting financial statements. And, even while all these activities are moving full steam ahead, your potential buyers will also be evaluating the business and the financial results up to and beyond the closing table.
If you take your eye off the ball during this critical period, you risk flat performance, missed targets, and lackluster financials. Potential impacts can range from a drop in buyer confidence to a lowered price and even a lost deal. While you’ll still be running full throttle while selling your business, advance preparation will ease the load during the crazy breakneck process. Far too many sellers underestimate the demands of this time in their lives.
Thoughtful preparation for the sale of your largest asset will help you run a smooth process and prime you to take advantage of the best-fit deal. Completion of several essential tasks, deserving of adequate time to really think them through, is not an overnight fix – but will pay off when the time comes to sell your business. You can prepare in advance to sell your company, or you can play catch-up throughout the deal process when your leverage is lowest.
Selling Your Business: Best Ways To Prepare In Advance
At Linden Law Partners, we specialize in quarterbacking all aspects of M&A deals, and we’ve represented buyers and sellers in hundreds of M&A deals. While there are many common threads among the most successful transactions, we recognize the uniqueness and personal attention required for each deal. Contact us to discuss how we can help.
