For many founders, selling his or her business is far more complicated than just putting a “For Sale” sign in the window. It can take months or years to properly prepare your business for sale, and unfortunately, many small business owners miss the opportunity to generate a more favorable sale simply because they didn't know all the steps they should have taken prior to entering a full process.
So, before getting too far down the sales process, it's best to spend time preparing yourself and the business for some of the more commonly overlooked aspects of a transaction.
Organize and verify the previous 3 to 5 years of financial statements related to the business. Keeping strong and clear financial information and records is important because interested buyers are going to require a deep understanding of cash flows and your business's profitability characteristics.
Key considerations: What is the story you are conveying with your financials? Do you have monthly subscription revenue or long-term contracts? Do you have a track record of sustained growth or are you experiencing sales stagnation? Do you have too much customer concentration, or are you successfully selling into a variety of similarly sized clients or industries? Do you need a Quality of Earnings analysis completed to validate your financials?
Determining the market value of your business is a critical step in preparing for a future sale. It's essential to have a clear understanding of how your business is perceived in the market, as this directly impacts all aspects of the sale. To effectively assess your business's value, consider the following:
Key considerations: Read Exitwise's 4 Ways To Calculate The Value Your Business for a deeper understanding of this process, or check out our free Business Valuation Calculator to get a comprehensive evaluation of what your company is worth in today's market.
It's important to have an exit plan prior to any sales discussions. Buyers will want to understand your interest and ability to stay with the business, and your reasons for wanting to sell.
Key considerations: How long are you willing to stay with the business post-transaction? Do you have a strong management team able to support the business after your departure? Are you planning to roll equity into the acquiring entity?
Cashing Out podcast guest, Ryan Vaughn, has spent the second half of his career working with high-performing business owners and entrepreneurs to help them build incredible companies and prepare themselves for a future exit. In a recent article, Ryan highlighted the challenges that many business owners face after selling their business, "For a founder, an exit is the culmination of the journey. The final success in a string of them; the proverbial pot of gold at the end of the rainbow. We chase the exit unquestioningly, so focused on attaining our goals that we never stop to consider what might come after."
After so many years of building a business, many owners are surprised by the emotions associated with walking away - preparing yourself for the "day after" the sale is something that can't be overlooked.
Key considerations: How are you going to spend your time? What is going to bring you daily fulfillment once you're no longer associated with your business? What will bring you purpose in the next phase of your life?
Beyond identifying valued teammates within your organization, begin to build out your team of M&A experts, attorneys, and tax advisor. Reach out to professionals that are highly specialized, have a long track record of success, and a demonstrated history of creating competition in a sales cycle. Do your homework, and don't be afraid to ask for referrals and compare notes with other founders and CEOs in your network that have been through a sales transaction before.
Key considerations: Read Exitwise's Who Should You Hire to Help Sell Your Company to better understand your options around who to lean on for support throughout the sales process.
A business succession plan is a framework that enables business owners to properly transition management responsibilities before, during, and after a sales transaction. Succession plans are often overlooked but are important to a sales transaction because they increase buyer confidence in the seller's ongoing leadership team. Creating and implementing a proper succession plan can be a time-consuming process but can often be the difference between a successful sale and a disappointing failure.
A Quality of Earnings (Q of E) analysis is an assessment of a company's financial health and performance, specifically focused on the accuracy and sustainability of its reported earnings. This analysis involves scrutinizing various financial components, including revenue, expenses, balance sheets, and EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) to ensure they are correctly represented. It's not an audit, but a comprehensive review that aims to identify any discrepancies, irregularities, or areas of concern.
The necessity of a Quality of Earnings analysis before engaging in a merger or acquisition process varies based on the nature, size and complexity of the business. While it might not be a legal requirement, it is a highly recommended practice, especially for businesses seeking a successful M&A deal. Here's why:
Industry-specific investment bankers and transaction experts help founders develop a stronger understanding of their market potential, and confidently define the opportunities available during a sales process. The Exitwise platform was created to help founders identify the right team of investment bankers, M&A advisors and experts to drive maximum value during a sale. But more importantly, they will stay with you to help you through the exit process every step of the way.
Set up a time to chat with us and we’ll gladly walk you through the process.
Let Exitwise introduce, hire and manage the best, industry specialized, investment bankers, M&A attorneys, tax accountants and other M&A advisors to help you maximize the sale of your business.
