[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.