Selling a Business Means You Should Expect the Unexpected
No one ever said selling a business was predictable. However, the truth of the matter is that every sale is different. Even the reasons behind a business owner deciding to sell his or her business vary tremendously. If you are getting ready to sell, it’s important to be aware of the various aspects that could catch you off-guard. If you are prepared for the unexpected, you’ll be mentally ready for the sales process, which often does not go as planned. Even the smoothest and most streamlined sales encounter a few road bumps along the way.
Price Considerations
When it comes to the price structure for a potential sale, many business owners have numbers in their minds that do not meet with reality. As a result, a potential offer could be far less than what they expected, and this causes conflict and delays. Your brokerage professional will prepare you with a thorough valuation so you can have a clear idea of the fair market price of your business. Be sure to ask any questions that you might have so that you feel fully informed when it comes to prices.
Confidentiality
Throughout the sales process, confidentiality must be carefully guarded. Otherwise, this too can interfere with a sale. Your business broker or M&A advisor will have effective strategies to help maintain the highest levels of confidentiality. Even with the best safeguards in place, there is a small chance that a rumor could begin to circulate and word could get out to your employees, customers or supplies. In the case of this incident, it’s important to have a contingency plan in place to quell the rumors.
Your Stockholders
Oftentimes, business owners of privately owned companies forget that their minority stockholders have rights too. You will not be able to sell your business without dealing with all parties involved. When you get a “fairness opinion,” it can go a long way to convince your shareholders of the best price and terms. Even if your shareholders are members of your family, they will have to be successfully dealt with before the sale goes through.
Expect to Allocate Time
You may have hired an experienced business broker or M&A advisor, but you should still be prepared to spend some time dealing with the sale of your business. You’ll be expected to do everything from prepare documents to meet with prospective buyers. This fact that selling will take up your time is particularly true if you haven’t begun making preparations years in advance. That’s why we advise clients to start working with us early on.
You’ll want to make sure that despite your need to focus on elements pertaining to the sale of your business, it is necessary to keep your business running smoothly. Otherwise, any signs of weakness could interfere with your potential sale and your efforts could backfire. This issue just stresses the importance of preparing to sell years in advance.
Through the sales process you must still run your company as well as ever. You’ll want to make sure things are progressing nicely, even if you don’t plan to own the company in the near future. Obviously, your buyer will want things to look reliable and any dips can trigger a red flag.
Copyright: Business Brokerage Press, Inc.
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Thinking Of Selling Your Business? Start Here.
What to Expect When You’re Ready To Sell
There are several reasons small business owners decide to sell their companies — they want to move to another city or state, sales are down, they’re looking for a new challenge or it’s time to retire.
The prospect of selling your business can feel overwhelming, and you want to receive a fair price for the assets you’ve worked so hard to create. To make the process as easy and profitable as possible, you’ll want to start planning early. Whatever the reason, once you decide to sell, you can’t just hang up a “for sale” sign and wait for the offers to come rolling in. Selling for the right price takes time and preparation.
What’s Your Goal in Selling?
Owners often focus primarily on the question “How much can I get for my business?” However, the first question an owner needs to be prepared to answer is, “What results do I want to get from this transaction?” Business owners will typically focus on what they think their business is worth or how much a peer recently sold their business for, even if that business was in a different industry.
PGP Advisory suggests focusing on the owner’s personal needs and goals. For example, consider these questions:
- Do you want to transition the company to the next generation of your family or to employees?
- Is your goal to find a willing buyer in the open market and maximize the sale price?
- Do you plan to retire and live off of the proceeds from the sale for the rest of your life?
- Are you looking to invest some of your equity with the buyer and work with/for the next owner?
- Are you looking to reinvest in a different opportunity?
- What other goals do you have (e.g., paying for college educations, contributing planned amounts to charity)?
Understanding the Realistic Timeline is Essential
In an ideal situation, the questions above would be asked and answered several years before the owner wants to take their business to market. This timeframe would allow for appropriate estate and investment planning. Plus, having a longer timeframe allows owners and their advisors to consider what actions can be taken to increase the value of the company before going to market and leaves ample time for implementation.
Having time on your side can really pay off when selling a business. Whether you’re ready to retire or simply want to move on to a new venture, it’s imperative to keep in mind, that the completion of a sale can take well over a year, so keep that in mind as you plan your exit strategy.
At PGP Advisory, we explain to our clients that it’s reasonable to prepare for this to be a 2-year process, roughly from the time you decide to sell, all the way to the completion of the sale. Wrapping your head around this realistic time frame is a necessary first step. This critical preparation will help you to improve your financial records, business structure, and customer base to make the business more profitable. These improvements will also ease the transition for the buyer and keep the business running smoothly.
Selling a business requires an enormous amount of planning. As you begin the process, it’s important to focus on the step you’re in and the long-term objective. Otherwise, you may end up making short-term decisions that go against your ultimate plan.
Takeaways
Knowing what you want/need as a result of the sale and understanding the realistic selling timeframe, will set you up as much as possible for a smooth and successful transaction.
In our next segment, PGP Advisory will walk you through the first steps owners will want to take to begin the selling process from an advisor perspective, including helping you construct your transition team.
Read MorePreparing for Your Eventual Retirement
Many business owners are truly committed to their businesses. As a result, it is very difficult for them to step away even when they approach retirement age. It is not uncommon for business owners to keep working into their golden years. But the truth of the matter is that at some point almost everyone will need to embrace retirement whether it is for health issues, moving to a new location, or simply for greater peace of mind.
If you see this path approaching for you in the near future, it could feel overwhelming. After all, most people have not sold a business before. As a result, they feel unclear about the process and don’t know where to start. However, everyone should be thinking about the eventual sale of their business because this future event should determine many of your current activities and decisions.
Let’s take a look at some things you can do well in advance to ensure that an eventual sale of your business goes as smoothly as possible.
Automate Processes
When prospective buyers look at your business, they will want to be able to easily envision it operating smoothly without you involved. Because a good portion of business owners are so integral to the functioning of their businesses, it can be difficult for them to figure out how to decouple themselves from operations. In some cases, this process can take years.
Now is a good time to consider this issue and what you can do to make sure your business can function without you one day. Give some thought to who at your organization could be a second in command. When a buyer sees that a competent and knowledgeable employee will be staying on to assist them, it can go a long way in allaying any concerns.
Put Yourself in the Buyer’s Shoes
Imagine you were buying your business. What kinds of issues might be of concern to you? Chances are these will be the same issues that could concern potential buyers. Once you have identified any spots of weakness, you can start to zero in on figuring out how to handle them.
First and foremost, you will want your buyer to feel confident that there will be a smooth transition and that they can almost immediately begin to profit from their purchase of your business. Anything that you can do to help ensure that is true will benefit the sales process.
Business brokers and M&A advisors are experts in the world of buying and selling businesses. They will help you to properly evaluate your business and look for these areas of weakness. Through this means when you do decide it is time to retire, the process will go more quickly and seamlessly.
Copyright: Business Brokerage Press, Inc.
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A Look at the Market Pulse Report
The Market Pulse Report Survey is a resource that has a variety of information that business brokers and M&A advisors regularly utilize to better understand the business landscape. The most recent survey was conducted April 1st to April 15th 2022 and had 360 broker and advisor respondents. It also marked the 40th edition of the quarterly report. The Executive Summary of the report can be accessed here https://www.ibba.org/resource-center/industry-research/
The Main Street Market
One notable fact included in the latest report is that in the Main Street market, between 70% to 80% of buyers are likely to come from within a 20-mile radius. However, with larger companies, it is common for buyers to originate from a distance of over 100 miles away or greater.
The survey also indicated there are two key “headwinds” that businesses are currently facing. These include labor shortages and supply chain issues. Not surprisingly, labor issues are currently creating problems for organic growth. Likewise, supply chain issues can cause prospective buyers to shy away from a business.
The Profile of Current Buyers
The survey also indicated that Main Street buyers not only include the “typical” first-time business buyer. These individuals are often looking for a job in the form of owning a business. Serial entrepreneurs who have made money off previous deals are also now seeking to jump back in and buy another business. The survey indicates that about one-third of buyers who purchased businesses in the $500K to $1M range are serial entrepreneurs.
Additionally, there is a great deal of money flooding into the industry. The money is mostly coming from private equity, family offices, and corporations. Feeling burned by the lack of bank credit by the 2008-2009 economic downturn, these buyers don’t want to get caught in a similar situation again.
A Seller’s Market
The survey indicates that it is currently a seller’s market and that record setting multiples have been occurring. In Q1, an impressive 97% of businesses were receiving their asking price. However, nothing lasts forever. If you’re considering selling your business, it’s a good idea to start making progress now before this trend stops benefitting sellers.
Even with the strong sales track record last quarter, it’s important to note that a fast sale is still improbable. Even in the best economic conditions, it typically takes many months to sell a business.
There are many factors currently benefiting sellers, such as low interest rates, SBA involvement, and people not wanting to work for corporations. However, it’s important not to wait for the “right moment” as often that moment never comes.
It’s always a good idea to begin taking steps to prepare for the sale of your business as soon as possible. This can make a tremendous difference toward fostering a positive final outcome.
Copyright: Business Brokerage Press, Inc.
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3 Ways to Make Your Business Appealing to Buyers
If you are like most business owners, you have never sold a business before and might not have a clear idea of what the process is like. We recommend preparing your business in a way that makes the sale and transition process as easy for your buyer as possible. It should come as no surprise that buyers will like the idea of an easy transition.
It will be very beneficial if you take the time in advance to evaluate the steps and think about what you can do on your end to benefit your buyer. Since you’re the expert on your business, you have unique insights into what would make the transition the most seamless for the other party. When you prepare for the sale with your buyer’s experience in mind, you will likely not only speed up the sales process, but also increase the selling price.
1. Automate Processes
Just like you may have never sold a business before, your buyer may have never bought a business before. If you can figure out how to automate as many processes as you can, it will help with their workflow and reduce the level of intimidation your buyer may be feeling about taking over.
2. Establish a Second in Command
One thing you can do is have a second in command on your staff. If there is a competent employee that your buyer can depend upon for assistance and support, that fact alone will be tremendously attractive. If you do not yet have that person in place, you might have an eye on choosing a person and preparing them for this role. Speaking of staff, you will want to make sure your entire staff is well-trained and any HR issues are resolved in advance.
3. Keep Things Consistent
As you get closer to the time you will put your business up for sale, you will want to begin to work with vendors and key customers. You will want to ensure that the supply chain and significant customers are consistent. Otherwise, this could cause major disruptions for your buyer and impede his or her success. Of course, it goes without saying that you’ll want to keep the potential sale of your business completely confidential. If customers, vendors, and even employees learn about an upcoming sale, this fact alone can lead to a chain reaction of disruptions and problems.
A business broker or M&A advisor can help in a wide variety of ways when you are getting ready to sell. They are experts in maintaining confidentiality while taking you through the sales process from start to finish. Brokerage professionals will also assess your business and inform you of any areas that could be improved to make your business more attractive to buyers.
Copyright: Business Brokerage Press, Inc.
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