It’s Time to Get Ready to Sell!
Are you thinking about selling your business in the next three years or so? Does 2012 or 2013 sound about right? Then you may be surprised by the following: It is time to start the process RIGHT NOW!
Selling a business can be one of the most significant events in the life of an entrepreneur. Not only is there a lot of emotional capital to deal with, but business owners often have the bulk of their retirement assets tied up in the value of their business. Sell it for the right price and retirement is fantastic! Sell it for far less than you expect to, and retirement may not be retirement at all. Sell it in the right way, and your legacy continues; sell it without forethought and planning, and your employees may be out on the street.
The Coming Baby Boomer Transition Bubble
What most business owners don’t realize is that there is a coming buyer’s market for businesses, much like there is a current buyer’s market for homes. The number of quality businesses for sale has increased dramatically over the last few years and continues to increase.
Here’s why: there are a lot of Baby Boomer entrepreneurs who have built great companies and run them for 10, 20, 30 years or more. They are thinking about harvesting their investment and doing something else for a lot of good reasons. Some believe that they have met their financial retirement goals and they can back off, others have just lost enthusiasm, and some, unfortunately, have personal or family issues that preclude them from the continued necessary time and energy investments. Some have been advised that it is risky to have “all of their eggs in one basket”, and want to sell a portion of their business to diversify their retirement portfolio.
At the same time, the next generation of workers are very entrepreneurially focused themselves. They often want to start their own businesses rather than buy an existing one, even though the risk of failure is much greater. That means there will be fewer interested buyers for your business when you need them most.
Here’s a summary of what we expect to see in the next several years:
Steady state in years prior to 2001
# Baby Boomer buyers (aged in 40’s) reaches peak levels
Very few companies have been sold in this period
Does not include the pent-up supply of companies that were not sold during the 2008-2010 period
* # Sellers in “affluent” companies with employees from 5 to 500 that need to sell to provide liquidity for retirement. Source: Research Firm NFO study in 2001; updated in 2010.
Why Think About it Now?
If you plan to sell in several years, you have a lot of time to think about it, right? Not really. Most owners of larger companies (greater than $1,000,000 in annual revenues) don’t realize that it can take 3 - 6 years to make a graceful and profitable exit. At a high-level, the timeline can look something like this:
- Prepare the business for sale (18– 36 months)
- Locate buyers, negotiate the deal, and execute the transaction (9-18 months)
- Support the transition to new ownership (6 -36 months)
You can always “sell now, as is” if you want, but you may be leaving MILLIONS of dollars on the table by doing so. Preparing your business for sale today means that you will have a lot of flexibility as to when and how you execute the transaction.
Another critical reason to prepare your business for sale is simple: life happens. Any number of unexpected and unfortunate events can disrupt your operations and your plans, and frankly, the older you are, the more likely some of them are to occur. These nasty little possible surprises include:
- Dissenting Owners, and
- Declining Markets.
On the positive, flip side of the coin, there are any number of wonderful things that might come your way, too, such as:
- An opportunity to purchase a competitor,
- A significant offer by a competitor or private equity firm,
- A great expansion opportunity, or
- A buyout offer from a partner.
If you are prepared for sale, then your company has a higher value to competitors, partners, private equity firms, and lenders. You will absolutely be in better shape to take advantages of the opportunities that come your way, too.
So here’s the bottom line: if you want to sell your business on your terms, then you need to begin right away to run your business to increase its value and develop a business transition strategy.
Preparing Your Business for Sale
In order to sell quickly and for a great price, you have to have an exceptional value. And as with a private home, you will be far better off working ahead to prepare your business for sale.
When you stage a home for sale, you paint the walls, fix the roof, take out half of your stuff, landscape a little, and remove the personal distractions. You work with a real estate agent / broker to sell your home and you get out of the way. The process is disruptive, but usually only for a few months. You can even get an apartment or live in a hotel if you really need to get lost for a while.
When you stage a business for sale, the process is dramatically different. You want to present a picture of healthy profitability trending upwards with a management team that will stick around after the sale. You need to communicate with great confidence that the customers and partnership relationships you have spent years developing will transfer to the new owners. And as with selling your home, you need to get out of the way – the new owners need to be convinced that the business will operate smoothly without you.
In summary, the five things that most purchasers look for are:
- A solid performance history
- A capable management team
- A great growth story, including recent steady growth and strategic growth opportunities
- Consistently improving cash flow and EBITDA
- A smooth and thoughtful transition plan.
Unfortunately, the sales process is often disruptive to the business. Handled poorly, it can take months and you may lose valuable customers, momentum, and employees. The more carefully you plan for the transition, the less time it will take and the more business value and momentum you will maintain.
Your Transition Team
One other large difference between selling your home and selling your business is with the support team. In selling your business you need at least five professionals working together on your behalf for months or even years before the big event, as shown in the following table:
Investment Banker or Merger and Acquisition Specialist
Structures the offering, advertises the business, finds prospective buyers, helps negotiate the deal, manages the transaction
Helps structure the deal to ensure that your tax liabilities are minimized
Prepares for due diligence; reviews and negotiates transaction paperwork
Prepares for due diligence; reviews and develops financial reports
Strategic Planning and Execution Advisor
Guides you through the entire preparation and sale process, coordinating the efforts of other team members.
Works with you to develop and execute strategic growth plans to increase the value of your business and the appeal to prospective buyers.
The operative words here are “working together for years”. It is not common for such a team even talk to each other, much less collaborate. As a business owner, you need to make sure the professionals on your transition team are communicating and cooperating to get the best results.
A More Detailed Look at the Transition Process
We touched earlier the process of selling your business. Here is a more detailed list of some of the steps you might take:
- Develop a pre-sale plan with a professional who understands the entire process
- Determine when you would like to sell
- Talk to your wealth manager and determine your objectives for selling
- Talk to your strategic planning advisor about your opportunities for growth
- Ask your strategic planning advisor to help you select an M&A advisor or investment banker to determine the current value of your business and, later, to sell your business
- Build your transition team
- Work with the strategic planning advisor to develop a strategy for increasing the value of your business (your strategic growth plans)
- Conduct pre-due diligence
- Talk to your accountant(s) and tax advisor(s) about changing your financial reporting and compensation practices to make the business more attractive.
- Execute your strategic growth plans (18-30 months)
- Final Prep ( a few months before going to market)
- Prepare for legal due diligence
- Prepare for financial due diligence
- Determine target deal structure
- Work with M&A Advisor or investment banker to put your business on the market
- Search for prospective buyers
- Negotiate final price and terms
- Secure a letter of intent
- Facilitate buyer due diligence
- Complete the final agreement and the transaction
- Work on integration and transition
- Focus on financial management and reporting
- Monitor business performance and growth
Your Next Steps
What you do is certainly up to you. But if you want to be prepared to deal with unfortunate circumstances, take advantage of unforeseen opportunities, transition out of your business gracefully, on your terms, and with greater financial rewards, it is never too early to have a conversation with exit planning and value creation professionals.
What have you got to gain?
About The Mead Consulting Group
The Mead Consulting Group, Inc. has been providing strategic planning & execution, strategic marketing, business development and leadership development services to mid-size businesses since 1981. We specialize in working directly with owners and CEOs to help their companies reach the next level of success. Our clients have achieved superior results and well out-performed their peers.
But, don’t just take our word for it. Ask our clients.
- Strategic Growth and Execution
- Increasing Profitability and Cash Flow
- Maximizing Value for Exit
For more information, see our website www.meadconsultinggroup.com or contact: