Here are eleven ways a vendor (seller) can prepare their business for selling and get a deal over the line. The same principles apply to large corporations, medium-sized companies, and both large and small family-run businesses.
Don’t delay
Waiting too long or not selling planning can cause many business owners to miss their window of opportunity. It takes an average of one to three years to sell a business. Therefore, long-term planning is key to any successful business sale. Keeping updated records, detailed business history, and sales portfolio on hand will always pay off. You never know when that perfect buyer may walk into your business and make you an offer you can’t refuse.
Succession planning
Neglecting this is a common, major misstep by companies. Even if you do not have a successor who is a relative, you are still thinking like a succession planner. The person “succeeding” you need to be set up for success. If they see you have been planning and considering this for quite some time and that it’s not a quick “I’ve had enough” type sale, your price will be much higher. Add to that the confidence the buyer will have in the business purchase if they see there was a strategy for selling and that it’s not driven out of desperation.
Be realistic about timeframes (and focus)
Completion can be a long, drawn-out process, meaning the senior team can become dangerously distracted, with six or nine months of strategic drift having the potential to do real damage. Business owners should resolve to either keep running the business or to lead on the transaction – but not both. It is essential to have realistic expectations and to keep your eyes on the ball.
Be open-minded on price
The price is crucial in getting a deal over the line and can be influenced by various factors. Supply and demand in the marketplace are an obvious influence, but valuations are subtly nuanced and depend on a combination of factors. For a financial firm, these might include the spread of client size, the demographics and geographical spread of the client list, and the service proposition, to name just a few factors. In any event, negotiations often break down when expectations of either party are not satisfied in relation to price.
The formula used will take into account any uncertainty regarding liabilities and work out a valuation for a business that countermands the potential upside with the potential for complaints and business that might fall away. Interestingly, in many cases, the best price is not necessarily the first or final choice of the seller.
Whilst the seller wants to achieve the best price possible, they are frequently more concerned about whether the acquirer has the right people and proposition in place.
Also, be prepared to be flexible on terms
The terms on which any deal will be struck can also be a deal-breaker. Conventional purchases with large upfront payments can put an enormous strain on balance sheets, particularly on small to medium-sized acquirers. Partial
and staged deals are now widespread, reducing risk for acquirers and making transactions much easier to digest for them. However, vendors will need to find the terms acceptable, and deals may falter if they are not.
Large acquirers will be more likely to have access to finance than ambitious small and medium-sized ones, which might find it less easy to obtain the funds to support expansion. Vendors will want reassurance that funding is in place, so acquirers should have the evidence available to prove it.
Seek an excellent cultural fit
Unlike buying a house, it is not simply a case of getting the keys and moving in even once the price is agreed upon. To retain existing business, staff, contractors, clients, and their relationships, there will inevitably be a significant degree of
working together in the months and years after the purchase. When cultures clash, the chances of success drop dramatically.
Be democratic
Buyers should consider involving senior managers in the acquisition discussion, sharing their strategic vision from the outset. Otherwise, an acquirer could find managers, staff, and contractors abandoning ship the moment it takes the helm – along with their clients and much of the revenue the buyer thought it had just acquired.
Find the right adviser
Finding the right broker and or consultant to help you in selling your business is crucial to your success. Often, enterprises select the first consultant they meet to list their business and get the process going. This can cost time and money in the long run. Within a few months, you may see no results and have to commence the search all over again. Taking time to interview several consultants/brokers and looking at a realistic outcome will get you going in the right direction.
Ensure that the broker/consultant is working on your behalf
The buying enterprise pays most brokers. In other words, they are working for the buyer. To ensure impartiality, the selling enterprise should engage a broker and pay a small engagement fee and a contingent success fee. The seller receives more for his business in most circumstances because the buyer doesn’t have to pay broker fees.
Take ownership
Thinking a broker will do all the work in promoting your sale can be deadly. You know your business better than anyone else. No one is more motivated, passionate, and knowledgeable about your business than you. The consultant should spend time with the vendor to fully understand the nuances of the company and feel as excited about the business as the vendor.
Be selective about meetings
Ensure that the potential buyer is not just testing the waters and wasting your time. Your consultant/broker should only introduce potential purchasers to you if they know with certainty that your business is one that at least in principle matches their acquisition target sector. Some brokers will introduce you to businesses that have no real intention to buy to give the impression that they are actively working on your behalf.
