[Editor's Note: I
recently spoke to a group of business owners and CEOs about preparing
businesses to maximize the value of the business in a transaction. I was
surprised by how many misconceptions the group had about the process. I decided
to publish this article again. I hope you find it useful.
-dpm]
I know the buyer -
they are in my industry
Many business owners
think they already know the prospective buyers - from their industry. However,
in many cases where a sales process is conducted by an investment banker, an
"outlier" (either a strategic or financial buyer) surfaces with an
offer significantly higher than from those you may know. Many times these come
from outside your industry.
The market will be better next year
Procrastination can cost
you. Sellers in 1999 or 2007 will tell you that they wished they had sold while
the market was hot.
I don't want to sell until I have to (Dismal D's)
You want to sell when
your business is healthy and when you don't have to sell. Life can take cruel
twists and turns. Business owners without a plan can find themselves subject to
the "Dismal D's" - Death, Disability, Divorce, Dissenting Owners,
Declining market, Debt overload, or just pure burnout. It is hard work to sell
your business. You'll need plenty of energy and motivation to maintain
performance during the sales process.
The investment banker or M and A firm will build value.
No they won't - that's
not their job! A good investment banker can help you yield value, attract a
broader market of potential buyers and get a deal closed, but they don't have
the skills or background to build value. Some small M and A firms will
offer services and advice in order to get your transactional business, but
these are either very young, inexperienced associates or people who have not
really run a business. They are very good at selling your business, but what
they don't know can hurt you.
My lawyer (or CPA) (or Wealth Manager) will help me find a buyer
Finding a buyer is very
different than finding the best buyer, the right buyer.
Investment bankers do this every day. Most professionals understand what
they do well....and what they don't. Find the right tool for the job!
I met a guy in my CEO peer group / My investors know a banking firm
Selling your business
may be your most important business decision. Get help in making an informed
decision about selecting an investment banker or other professionals. Learn
about possible (but undisclosed) conflicts of interest, differences between
firms, level of expertise that will work on your company, etc. Have you
checked with previous clients that were both successful and unsuccessful? Mead
Consulting clients use a checklist of questions and we coach them so that they
make the appropriate choice and the best fit for their business.
It only takes 6 months to exit a business
Nothing could be further
from the truth. In order to realize the maximum value it may take you 1-2 years
to prepare the business, 6 -12 months to do the transaction, and then you may
have to remain for 3 more years with the company after the sale. Rushing a
company to market without proper preparation will cost you as buyers will
discount values for companies without an adequate strategic growth plan, strong
management, or a clean review of due diligence issues. We call those issues
that pop up during due diligence as "gotcha's".
Selling will only take some of my time
The biggest mistake
business owners can make is to allow business performance to slip during a
sales process. The primary reason for deals to either fall apart - or become
heavily discounted - is because of deterioration of revenue and earnings.
Business owners can dramatically underestimate the amount of time and energy it
will take to both sell the business and maintain performance during the
process.
Even if you are
not planning to sell soon, the process of maximizing value will lead to a more
profitable - and therefore more valuable - business.
