Entrepreneurs who seek to maximize proceeds from the sale of their business need to be proactive in defining objectives, identifying options and developing a thorough understanding of the many elements of the sale process. Being well prepared will position your business to minimize the risks and maximize the potential rewards, by avoiding the most common and costly mistakes.
Most business owners are focused on the day-to-day challenges and activities associated with running the company and are not experienced in the business sale process, which is typically a once-in-a-lifetime event. This can lead to critical mistakes that, if prepared for, can be avoided. The time to experience the learning curve is not when selling one of your most valuable assets. Lack of proper preparation and not utilizing the right professional transactional advisors can lead to a less than desirable financial yield from the sale.
Our experience in handling the sale of hundreds of privately held businesses, has identified the following as some of the common mistakes to be aware of:
Failure to consider all options in advance. Exit planning takes time and requires clearly defined objectives, with careful consideration of appropriate options. An array of options are available for consideration when structuring a business sale, including: retaining an equity stake in the business; selling to employees; identifying a working or investing partner; and, other hybrids. There are many optional acquirer types including: strategic acquirers, financial buyers and private equity groups. Which acquirer type is the most appropriate? Which would likely perceive the highest value for the business? What is the owner’s preference for future involvement with the company? Advance consideration of these questions and options will increase the likelihood of creating an exit strategy that will achieve your criteria and goals.
Realistic valuation expectations. An inflated valuation or unrealistic expectation will turn off quality potential buyers. Owners that attempt to handle the sale of their business, with no “market value” reality, will jeopardize the potential to sell. There is typically one “bite at the apple” and once the opportunity is squandered, it is very difficult to re-approach qualified acquirers at a later date that already have a bad taste from their previous experience. Approaching the market with unrealistic pricing expectations can waste months of valuable time, cause you to lose focus on the business, jeopardize confidentiality and burn through qualified buyers. An owner should rely on a professional business intermediary to provide a business value analysis in advance, which provides a range of values likely to be achieved if a transaction were pursued at a particular point in time. This enables you to make an informed decision by determining if your valuation objectives are aligned with marketplace reality. If not, an intermediary can provide suggestions for you to implement that can subsequently position the business and attain your goal.
Run the business as if you were going to own it for the long term. Avoid becoming fixated on the transaction. If your attention waivers from the day-to-day demands, it can negatively impact sales and profitability. The sale process is typically a protracted period and a buyer needs to know that they are acquiring a business that continues to perform well as the closing approaches. Even with five consecutive years of strong historical earnings, if the interim financial performance during the sale process demonstrates erosion, the acquirer can be concerned that there are negative changes impacting the business that may be your underlying motivation to exit. You need to drive the business harder than ever during the crucial business sale period. Utilizing a professional business intermediary enables you to focus your efforts and attention on running the business and maximizing its performance, with a comfort level that the transaction process is being professionally managed.
Confidentiality. It is very difficult for a business owner to handle a transaction directly without compromising confidentiality. With professional representation, it is rare that competitors, employees, vendors or customers will become aware of a pending transaction. Intermediaries typically present the sale as a business opportunity without identifying your specific company. A breach of confidentiality surrounding the sale of a business can change the course of the transaction and have a negative impact on the business.
Article written by Stephen J Goldberg
Sun Mergers & Acquisitions