Once you decide to sell your company, you need to understand the process for executing that decision. After all, a company is an asset, and a transparent sale with complete transfer of liabilities requires serious preparation. This includes understanding the process in advance. If you do this, you can avoid making hasty decisions.
This article provides a comprehensive overview of this complex undertaking. We present the typical sales process in successive phases. We explain the most important tasks involved and why you should take advantage of expert M&A advice. This combination of theoretical and practical approaches may help you kickstart selling your business without hassle.
Whether you’re aiming for a new entrepreneurial challenge or retirement, there are many good reasons for selling a company. However, you should always be clear about your goals because this affects the future existence of the company’s brand and your involvement in the company. The goals you set at the start of the sales process determine the sales strategy.
To begin, ask yourself:
- When do I want out?
- How will my exit affect my family?
- What will I do without my business?
Financial goals, both business and personal, should take precedence. You need to exit your business with enough money to support your desired post-exit lifestyle. The net amount of money calculated should consider taxes and other mandatory deductions. It would be best if you also made provisions for family members. How will they survive if something happens to you before you exit the business?
Other goals include:
- The time when you want to leave the company
- If you wish to transfer the business to a particular successor or investor
- Minimizing/avoiding taxes
- Benefiting employees
- Maintaining company culture, etc.
Consider the expectations of other interested parties or stakeholders—souse, children, employees, business partners, etc.—affected by your exit decision.
Our practical experience shows that it makes sense to deal with these issues before the company sells. Medium-sized companies in particular often have well-established structures that can be sustained in connection with a company sale or a company valuation. Consider the following topics:
- Dependency upon a single executive or manager
- No second management level
- Unfavorable operations
- Investment backlog
- Secured pensions for employees
- Dependency on a small number of customers or suppliers, employment contracts, or pension commitments
- Balance sheet accuracy in reflecting profitability and taxes.
All these issues influence negotiation and the purchase price. For this reason, it makes sense to think in advance about the parameters that have a lasting negative impact on the purchase price and to take appropriate remedial measures at an early stage.
This complex process always begins with an intensive analysis of the business’s current situation and a specific catalog of metrics usually developed in cooperation with a professional M&A consultant.
This takes us to the next step.
The Consultant Search
Practice shows that the duration of the transition process and the double burden it places on the entrepreneur are underestimated. It is all the more important for the owner to deal arrange succession in company management at an early stage to guarantee a certain degree of transaction security in the transition. The right consulting team, who should act with integrity and confidentiality, plays an essential role here.
Exit planning requires teamwork. You need an experienced and top-quality advisory team comprised of professionals: a financial planner, business valuation advisor, business attorney, financial services professional, compensation expert, business consultant, succession planner, CPA, insurance specialist, tax specialist, etc.
A comprehensive team will overcome the different types of issues that may arise:
- Financial matters
- Getting the management team ready and retaining key employees
- Creating and enhancing business value
- Identifying problem areas and rectifying them
- Tax and insurance matters
- Ensuring business continuity when unforeseen events occur
- Wealth management post-exit.
Are you wondering which criteria to consider when looking for good exit planning advice? The more experience your advisor has with transactions in the industry, the deeper his financial knowledge, and the more extensive his network of buyers, the better. After all, it’s his job to take care of your company’s attractive presentation.
It is often challenging to contract external advice, but doing so is usually worthwhile for several reasons:
- Confidentiality and objectivity are maintained.
- Specialist expertise is often more in-depth than that of in-house counsel.
- The advisor has managed a much larger number of similar transactions, which positively affects the likelihood of closing and the potential profit.
The First Meeting
Once a suitable consultant has been found, the process starts with a kickoff meeting between the company owner and the consultant. This entails discussing the process, structure, and goals of the company sale and familiarizing the consultant with its products and services. Your M&A advisor needs to understand your organization and its unique selling points.
In the kickoff meeting, take a very close look at the following factors for discussion:
- How many customers does your company have, and how can they be classified in terms of quality?
- How many people with which skills do you employ?
- Which suppliers do you work with?
- What is the market and industry trend for the next few years in your niche?
Based on your answers, you will get a good sense of where the strengths and weaknesses lie regarding the sale of your organization. After the kickoff meeting, further preparation continues via internal and external analyses, action plans, and execution. This phase of the process begins with an accurate valuation of your company.
You need to have a realistic idea of your company’s value to justify the sales price you want and present that value convincingly. This complex exercise benefits from expert valuation advisors who can identify the proper valuation process for your unique business.
Value advisors don’t work in isolation. You and your management team will be actively involved in the entire process and understand it well. Despite the myriad existing company valuation methods, no single approach can fully depict a company’s value. Experienced specialists know these many methods and can analyze the overall situation of the company.
A Good Start
The central pillar of a successfully executed process is selecting the advisory group that takes holistic care of the transaction. Successful implementation mandates in a team of business and legal experts, which benefits all parties involved. Value Scout helps you pinpoint your business value today, drive a plan to create the value you need tomorrow, and exit on your terms. Get in touch now!